Contrast between Securities & Commodities Transaction Tax

Commodities Transaction Tax (C.T.T.), is a tax payable to the central government on trades made on commodities.

CTT was first proposed in 2008 and received violent opposition as commodity trading was at a beginning stage in India, and levying such tax could lead to a dip in commodity trades.

CTT was brought before parliament again in 2013 but remained confined to Non-Agricultural Commodities such as Gold, Silver, however when the bill was passed CTT was to be levied on Trade in Commodity Futures on and after 1 July 2013.

With the introduction of CTT commodity trading dipped as high as 50-60% in India. The primary argument against CTT is commodities traded are a tool for hedging against price movement and as the cost of hedging will increase by levying CTT, hedgers wouldn’t hedge in commodities.

CTT is charged as follows:

1) Sale of Commodity (Except Agri): 0.01% paid by seller at the price which commodity is traded.

2) Sale of an option on commodity derivative:0.05% by seller at the option premium.

3) Sale of an option on commodity derivative, where option is exercised :0.0001% by the purchaser at the settlement price.

Securities Transaction Tax(S.T.T.) is also a direct tax paid to the central government like CTT, however STT is levied on every purchase and sale of securities (Equity Shares, Derivatives ,Unit of Equity Oriented Mutual Funds) unlike CTT which is levied on only to sellers on non-agri commodities.

STT was introduced in 2004, to tax people who avoided capital gains tax by not declaring profits from securities transactions.

It is collected by the recognized stock exchange, or banker in case of mutual funds ,and is payable to govt. on or before 7^th of the concerned month.

STT is governed under STT Act, and is charged as follows:

1) Delivery based purchase of equity shares: 0.1% by the purchaser on the price of purchase .

2) Delivery based sale on equity share : 0.1% by the seller at the price of share sold.

3) Delivery based sale of unit of mutual fund :0.001% by seller at the price sold.

4) Sale of equity share otherwise than of delivery or transfer or intra day :0.025% by seller at price sold.

5) Derivative- Option Sale :0.017% by seller on option premium.

6) Derivation- Option Sale where option exercised :0.125% by purchaser at the settlement price.

7) Derivative sale of futures :0.01% by seller price at which traded.

8) Sale of unlisted shares to public and such shares are afterwards listed at exchange :0.2% by seller as the price they are sold for.