Who wrote this article?

Deepak Shenoy, Capitalmind's research team.

STT Gets Slashed, CTT Comes In

28 Feb 2013Deepak Shenoy2 min read

Quick Facts

What is "STT Gets Slashed, CTT Comes In" about?
What category is this article in?: Economy
Who wrote this article?: Deepak Shenoy, Capitalmind's research team.
When was this article published?: Published 28 February 2013.
How long does this article take to read?: 2 min read
What topics does this article cover?: Budget
What does the "Mutual Fund STT Cut" section say?: STT for Delivery transactions – that is, where you purchase but do not sell intraday – of an equity mutual fund , bought on a stock exchange (so, an Exchange Traded Fund, effectively) – is currently 0.1% each way (buying and selling).
What does the "Futures STT cut to 1 basis point" section say?: STT for futures was 0.017%, or Rs. 1,700 per crore. For a single Nifty Lot, that worked out to Rs. 51 per lot (at Nifty of 6,000). That will now come down to Rs. 30 per lot at 0.01%. (Only on the sell side)
What does the "Commodity Derivatives Taxed" section say?: The FM has introduced a Commodities Transaction Tax (CTT) at 0.01% of the total contract value, for all non-agricultural commodities. A contract to buy 100 grams of gold (costing Rs. 2.8 lakh today) will pay Rs. 28 in taxes (paid by the seller).

Securities Transaction Tax (STT) is something traders seemed to expect would go away (Read my last post about why I thought it would not be taken out), and it has indeed been reduced. From the finance memorandum:

Mutual Fund STT Cut

STT for Delivery transactions – that is, where you purchase but do not sell intraday – of an equity mutual fund , bought on a stock exchange (so, an Exchange Traded Fund, effectively) – is currently 0.1% each way (buying and selling).

From June 1, you will not pay STT for purchasing Equity ETFs. And you’ll pay just 0.001% for selling them.

What about regular equity mutual funds (not sold on the exchange)? The STT has been cut from 25 basis points (0.25%) to a miniscule 0.001%.

Why even that? Because as I have argued in a detailed post, taking it to zero means that long term capital gains taxes will apply – and that is not desirable.

Futures STT cut to 1 basis point

STT for futures was 0.017%, or Rs. 1,700 per crore. For a single Nifty Lot, that worked out to Rs. 51 per lot (at Nifty of 6,000). That will now come down to Rs. 30 per lot at 0.01%. (Only on the sell side)

Commodity Derivatives Taxed

The FM has introduced a Commodities Transaction Tax (CTT) at 0.01% of the total contract value, for all non-agricultural commodities. A contract to buy 100 grams of gold (costing Rs. 2.8 lakh today) will pay Rs. 28 in taxes (paid by the seller).

This can be a bummer, since most contracts are highly levered (you pay a margin of just Rs. 8,000 or so per contract) and therefore people make trades that get them Rs. 100-200 per contract in profit. Of that, this CTT is a significant number.