Union Budget 2025: As the Union Budget 2025 approaches, the PHD Chamber of Commerce and Industry (PHDCCI) has requested Finance Minister Nirmala Sitharaman to consider eliminating the Securities Transaction Tax (STT). The STT is a tax imposed on the purchase and sale of stocks and other securities on Indian stock exchanges. This tax is classified as a direct tax as it is applied directly to the transaction value of securities.
The industry body has put forward a proposal to the Finance Minister, expressing concern over the recent increase in the long-term capital gains (LTCG) tax on listed shares from 10% to 12.5%. PHDCCI argues that given this change, the Securities Transaction Tax (STT) should be eliminated to create a level playing field for all assets. This, they believe, will not only reduce the tax burden on investors but also encourage more participation in the stock market, thereby boosting economic activity.
In the full Budget 2024, FM Sitharaman announced an increase in the STT rate for equity and index traders from 0.01% to 0.02%. This adjustment will result in traders having to pay twice the amount of tax for their trades.
The PHDCCI reported that STT collection for the current fiscal year amounted to Rs 40,114 crore from April 1 to December 17.
Furthermore, PHDCCI recommends reducing tax rates for individuals and Limited Liability Partnership (LLP) firms to 25%. According to their statement, this reduction will not only alleviate financial pressures on businesses and individuals but also spur investment and economic growth across various sectors.
"A simplified tax structure can reduce compliance costs and increase disposable income, boosting consumer spending. This increased demand encourages business expansion, driving economic growth. Additionally, the reduction in tax burdens can help mitigate inflationary pressures too," said Hemant Jain.
The proposition also recommended expediting faceless appeals in the tax system by proposing the implementation of a mandated timeframe for resolving tax disputes. In addition, it put forth the idea of permitting physical hearings in rare circumstances to minimize unwarranted delays and enhance transparency.
STT in Budget
The Securities Transaction Tax (STT) was introduced in the 2004 Budget by UPA Finance Minister P. Chidambaram with the aim of addressing evasion related to capital gains. Concurrently, the Finance Minister also announced the exemption of Long-term Capital Gains (LTCG) from taxation. This led to speculation that STT could potentially replace LTCG in the future. STT is levied on a variety of financial instruments traded on various platforms including stocks, futures, options, mutual funds, and exchange-traded funds (ETFs).
In 2018, NDA Finance Minister Arun Jaitley reintroduced a 10% tax on Long-Term Capital Gains (LTCG). This tax is applicable when gains from stocks or equity mutual funds exceed Rs 1 lakh, without the benefit of indexation.
Before each Budget season, there is continuous speculation about the potential reduction or total elimination of Securities Transaction Tax (STT) after its reintroduction. This speculation arises from the reintroduced Long-Term Capital Gains (LTCG) tax.
What FM Sitharaman said about STT
After unveiling the Union Budget 2024, Finance Minister Sitharaman announced that the government has opted to retain the Securities Transaction Tax (STT) in order to track significant expenditures effectively.
During a Budget discussion in the Raja Sabha on whether STT should be removed as capital gains tax has been restructured, FM Sitharaman said: "A member of the House spoke of STT rates and reminded of a promise given long, long ago that if capital gains is there then STT will be there only for sometime. So if capital gains is there, STT may not be there. But we have kept STT because it helps us trace those with big ticket spending and also helps in widening tax base."
During her Budget speech, the finance minister said: "I have a couple of proposals for deepening the tax base. First, Security Transactions Tax (STT) on futures and options of securities is proposed to be increased to 0.02 percent and 0.1 percent, respectively. Second, for reasons of equity, I propose to tax income received on buyback of shares in the hands of the recipient."