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The impasse surrounding levy of securities transaction tax (STT) on physical delivery of shares in the equity derivatives segment has now reached the Bombay High Court. ANMI, the association of NSE brokers, approached the court on Monday claiming that there is no provision in the Finance Act to tax derivative trades on physical delivery and any attempt to collect the same by the NSE upfront may be illegal.
The NSE, in its circular dated July 17, had directed its members in the equity derivatives segment to collect STT on physical settlement of stock derivatives at the rate of 0.10 per cent with effect from July 26. The NSE in the circular also told the members/brokers that if the CBDT issued any clarification or amendment on taxation of physically settled F&O contracts, then the exchange would recover such additional tax burden from the members.
The NSE’s circular was issued after SEBI introduced physical delivery as a new segment this year, and identified 46 stocks that will be compulsorily settled via delivery of shares in this segment. There has been confusion both over the levy and the rate of STT that should be levied on these transactions as it involves various legs of trade, such as buying and selling in futures, and final settlement via delivery, where the entire amount has to be paid.
Before going to the HC, the ANMI had first moved Securities Appellate Tribunal (SAT) seeking clarity on the matter. SAT directed the ANMI to approach other “appropriate forum for seeking remedy against the impugned circular at the earliest for the matter.”
“In the petition filed in the HC, ANMI has challenged this illegal, unjust and arbitrary action of the NSE to hold the exchange members/brokers liable/responsible to pay STT that is levied on a trader in derivatives, which are settled by physical delivery,” a statement from the association said.
The petition says that under the Finance Act, the charge/liability to pay STT is on the constituent trader “on the exchange”. It is further argued that the obligation of stock exchanges to collect STT and to pay over to the government and brokers/members only “act as an agent to collect STT from the constituent and forward the same to stock exchanges”. The matter will be heard on August 13 by the HC.
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