The government has clarified that securities transaction tax (STT) will be levied on physical settlement of derivatives at the rate at which such tax is levied in the equity cash segment.
While replying to an appeal filed by the Association of National Exchanges Members of India (ANMI) at the Bombay High Court, the government, through the Central Board of Direct Taxes (CBDT), clarified that a physically settled derivative contract is similar to a delivery-based contract in the cash segment and hence the same rate of STT would be levied.
“CBDT is of the view that where a derivative contract is being settled by physical delivery of shares, the transaction would not be any different from transaction in equity shares where the contract is settled by actual delivery or transfer of shares and the rates of STT as applicable to such delivery-based equity transactions shall also be applicable to such derivative transactions,” stated the reply filed by CBDT.
Currently, delivery-based trades attract an STT of 0.1% while it is lesser on derivatives contracts.
ANMI had filed an appeal at the Bombay High Court seeking a clarification on the manner in which STT would be levied on derivative contracts that are physically settled. On Tuesday, the division bench comprising justices B.R Gavai and M.S. Karnik disposed of the petition after the government provided the clarification that was being sought by the broker body.
