Business   

Share transactions subject to STT — is discrimination justified?

I understood the question you answered in The Hindu dated December 19 in a different way. I thought what the questioner wanted to know was, whether there is any sense in taxing share transactions as business, when all such transactions suffer securities transaction tax, whether they are by investors or traders.

The root of the problem is in the definition of capital asset in Sec. 2(14).

It excludes stock-in-trade, so that where the share transactions constitute a business, they cannot lead to capital gains eligible for concessional treatment. So the question is: can identical transactions be treated differently for income tax while treated equally for securities transaction tax?

Of course, the answer is that for purpose of income tax, the identity may be different by reason of the character of the holding, whether it is investment or stock-in-trade, which difference is of no consequence to securities transaction tax. I feel that there is an opportunity for the Revenue to remove one of the hotpoints.

They can redefine capital assets to exclude shares that are subject to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004. Consequently, amendment to Sec. 10(38) removing the limitation of exemption to long term capital gains will be necessary, while Sec. 111-A can be omitted.

Comments on the above lines have been received from a number of readers.

The suggested amendments to treat business profits on a par with capital gains in respect of listed shares which have suffered securities transaction tax (STT) will remove a source of litigation as to whether such shares are held as stock-in-trade or investments. Further, it will promote turnover in stock exchange, if such inhibition against frequency of transactions is removed.

Subjecting a person to both STT and income-tax (or for that matter capital gains tax in respect of short term assets even for investors) does create a sense of multiple load, as such double taxation on the same transaction does not carry conviction as a fair tax, since it makes an invidious distinction as between taxpayers.

The suggestion, therefore, deserves consideration for more than one reason.

S. Rajaratnam

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Mobile operators set to target vast rural market
SEBI's finetuning of market regulation
Standing up to domain squatting: secure your IP in virtual world
Welcome changes made by SEZ Act
Share transactions subject to STT — is discrimination justified?
Tools to mine the Live Web

Copyright © 2006, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu