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Mumbai-based stock brokers association (ANMI) has dragged the NSE to the Securities Appellate Tribunal with regard to securities transaction tax (STT) on newly introduced physical settlement of equity derivative trades. ANMI has particularly challenged NSE’s circular of July 17 on a specific clause that says the exchange reserves the right to collect more STT from brokers in a retrospective manner if and when specified by the tax department, source told BusinessLine . A hearing will be held on Tuesday.
Brokers say, in the first place there was no provision in law to tax derivative trades that result in delivery. But the NSE issued a circular saying it will levy 0.1 per cent STT on futures and options (F&O) segment trades that result in delivery from July 26. Brokers fear that if the exchange raised a tax claim in the future, they may not be able to collect it from their clients as nobody comes to pay dues that were not applicable to them when they traded. In the current case, brokers say they are aggrieved as the NSE has put them in a spot by declaring that it can make a tax demand retrospectively.
“It is feared that upon any such future demand for STT, the stock exchanges will simply debit their members’ (brokers) bank account/s with the claim amount of the government and leave them high and dry to fend for themselves,” the ANMI said in a letter it wrote to the NSE and has even pleaded the same with SAT.
Physical delivery norm
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.
Brokers who spoke to BusinessLine said as of now they had appealed to SAT against the retrospective manner of levy of STT by the NSE but they will also approach court once their clients refuse to pay STT at all on physical delivery settlement of derivatives as there was no provision for it. A law for such a tax is required to be passed by Parliament for demand to be raised, ANMI members say.
NSE did not comment.
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