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STT Gets Slashed, CTT Comes In


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.


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