FM comments spark hopes of STT changes

Hopes among investors and equity bourses of a reduction in the securities transaction tax (STT) have received a further boost, with some even expecting that the government might abolish the tax on delivery-based transactions in the cash segment.

This is after Finance Minister P Chidambaram’s remarks on Saturday that the government was considering measures to increase the percentage of delivery-based trades in the market and also steps to curb the shift in trading volumes to overseas markets.

The comment is being interpreted by market players as meaning the government might go for another round of STT cut in the Budget later this month.

Brokers believe the Centre may also take steps to bring down the overall transaction costs in the country, which is considered to be one of the highest globally.

“STT was cut in the last Budget. I am hopeful that it might come down further,” said Motilal Oswal, chairman of Motilal Oswal Financial Services.

Added Dinesh Thakkar, chairman and managing director, Angel Broking: “If you read between the lines, there is definitely something in the offing.”

Chidambaram on Saturday had said: “We intend to take measures that will encourage delivery-based trades and also find ways and means to bring the options market, or at least substantial portion, back to India.”

The government in the last Budget had cut STT by 20 per cent for delivery-based trades in the cash segment, while keeping it unchanged for all other type of transactions.

Currently, STT, a tax charged on the purchase and sale of listed securities, is charged 0.1 per cent for delivery-based trades, payable by both the

buyer and the seller. STT for non-delivery trades is charged at 0.025 per cent to be paid by the seller.

Meanwhile, STT in the derivatives segment is levied in the range of 0.017 per cent to 0.25 per cent, depending on the nature of the transaction.

On an average, less than half of the trades in the cash segment are non-delivery based. In 2012, when the market rose about 25 per cent, just 40 per cent of the trades were delivery-based.

However, market players believe given the government's fiscal deficit concerns, it is unlikely that there could be a significant reduction in STT.

“There could be small rationalisation here and there, but nothing significant,” said Nirmal Jain, chairman, IIFL.

Arun Kejriwal, director, Kris Securities, said in order to ensure that most of the trades end in delivery the government may bring on STT on delivery-based trades, while increase it on non-delivery-based trades.

Currently in absolute terms, for a turnover of Rs 1,000, both the payer and the seller have to pay Rs 1 each for delivery-based trades, while for non-delivery based trades of the same amount the seller pays 25 paise.

Another area of concern for the government is shifting in derivatives trading volumes overseas.

In 2012, the Nifty futures turnover on the National Stock Exchange saw a drop of 33 per cent to Rs 5,732 crore (Rs 57.32 billion), while it rose by around 20 per cent to Rs 1,659 crore (Rs 16.59 billion) on Singapore’s SGX.

“There is very little room to bring back the futures trading volume back home. It is up to the foreign investors, where they want to register and trade,” said Thakkar.

Complete coverage: Union Budget 2013-14