Union Budget suggests treating Security Transaction Tax as advance income tax

It has been suggested in the Union Budget that Security Transaction Tax (STT) should be treated as advance income tax such as TDS and income may be taxed as per normal as well as special rates of tax.

It has been suggested that capital gains of kind may be assessed as trading profit. It has also been suggested that the rates of tax may be increased by 1.5 times and even double rate may be applied to persons without PAN.

Object of STT:

In the earlier times, people often did not declare their profits on the sale of stocks to avoid paying capital gains tax. In such a situation the government could tax only those profits that have been declared by the tax payers.

Security Transaction Tax was introduced with the object to simplify taxation of income from security transactions. The main object was to mitigate tax evasion as it is taxed levied at source.

Stocks, option, mutual funds, etc. come within the scope of STT.

However, it has been observed that litigation in connection with income form security transactions has increased and often it has resulted in a nightmare for assessees due to the dis allowance on expenses.

Exemption of tax has also caused suspicion in mind of tax authorities. Unfortunately tax authorities are putting all their allegations on tax payers by alleging that they have evaded tax on income by means of capital gains merely on presumptions.

Many proceedings are been initiated for reassessment, revision etc. even in case of petty tax payers.

When is STT paid?

Securities Transaction Tax is levied on securities trades. It is not levied on commodities or currency trades. Different rates of STT are applicable for Equity and Futures and Options transactions.

Securities Transaction Tax is levied on trades on the National Stock Exchange, Bombay Stock Exchange, etc.

Securities Transaction Tax was introduced in the Budget, 2004 and it was implemented in October, 2004.

Securities Transaction Tax is a kind of turnover tax where tax is levied upon the investor in connection with the total consideration paid or received by him in a transaction of share.

When Securities Transaction Tax is levied long-term capital gains are exempted. However short-term capital gains are taxed at a lower rate.

In other words taxation by way of STT is in lieu of income tax.

STT is payable even in case of no profit. STT is paid even if there is a loss. STT is not allowed in case of investors, as such, it is in nature of tax on income.

STT shall be applied in the case of transactions taking place in the exchanges. For availing the exemption on long term capital gain, the asset in question should be subjected to STT.