Mumbai: There were a lot of expectations that the Union Budget 2015 would remove the securities transaction tax (STT) anomaly between the tax treatment of shares invested long term vs derivatives. As STT is structured, it punishes investors who invest in cash market long term and encourages those who speculate in the F&O segment.
According to Ajit Ranade, chief economist, Aditya Birla group points out that the STT on investments in the cash market is 0.1 per cent for the buyer and seller whilst the day trader pays just a quarter per cent of this. The speculator trading through the futures segment pays a mere 0.01 per cent on selling whilst the buyer pays nothing. The buyer settling in the options segment pays 0.125 per cent STT.
India has the highest ratio in the world of trading volumes in the derivatives to cash segment. Volumes in the derivatives segment is 16 times that in the cash segment, he said and “is mostly speculative and unproductive.”
On March 5, cash trading on BSE and NSE were Rs 3,647.80 crore and Rs 19,541.99 crore respectively whilst in the F&O segment it was Rs 24,274.47 crore on BSE and Rs 2,36,434.17 crore on NSE. Mr Ranade said, “The tax structure between the cash market and derivatives is asymmetric and accentuates excessive speculation thereby accentuating volatility of prices. This decreases the level of people’s trust in the stock markets even while government is trying to channelise household savings to the equity markets,” he says, adding “rationality and proportionality is necessary.”
BSE MD Ashish Chauhan says they have been making representations about this anomaly for the last five years to the government.
