NEW DELHI: Supreme Court on Monday decided to examine a plea challenging constitutional validity of Securities Transaction Tax ( STT ) imposed on stock market participants and sought response from the Centre on a petition filed by a trader who alleged it violated the principle of double taxation . STT was introduced 2004 and is currently charged at 0.1% on both the buy and the sell side for stock trades.
A bench of Justices J B Pardiwala and K V Viswanathan issued notice to Centre and sought response from Ministry of Finance on the allegation that STT is illegal and unconstitutional as it amounts to double taxation and also that a trader is forced to pay tax even in case of financial loss in a transaction. The court was hearing the petition filed by trader Aseem Juneja.
"STT is the only tax in India which is imposed on the sheer act of carrying out a profession and has to be paid irrespective of whether there is a profit made or not, which makes it almost punitive or deterrent in nature. Every tax in India is on the profit at the year end but STT is applicable even if a stock market trader is operating at a loss.... STT was introduced to combat tax evasion in the stock market. STT to stock market participants is what TDS is to salaried individuals. But the problem is that the TDS is refunded at the end of the year or adjusted with the income tax but no such provision is made for STT and the trader has to pay both. Other major stock markets like the USA, Germany, Japan, Singapore do not have a STT type tax on the transactions made on their stock markets," the petition said.
Garg pointed out the traders already pay tax in the form of STCG (Short Term Capital Gain) tax for any profit under one year and LTCG (Long Term Capital Gain) Tax on the profit made on a trade held for more than one year and STT is over and above STCG or LTCG which amounts to double taxation.
"It is clear from above that the Petitioner is paying taxes on the same transaction twice - in the form of STT (tax on the amount of shares bought or sold) and then STCG/LTCG on the profits of the same transaction. This violates the principle of double taxation as the petitioner is taxed twice on the same transaction. In short, two principles of taxation are being violated here - one double taxation and second that the tax is applied not on the profits (as it traditionally is) but on the mere transaction itself. This clearly violates articles 14, 21 and 19(1)(g) of the constitution," the petition said.
A bench of Justices J B Pardiwala and K V Viswanathan issued notice to Centre and sought response from Ministry of Finance on the allegation that STT is illegal and unconstitutional as it amounts to double taxation and also that a trader is forced to pay tax even in case of financial loss in a transaction. The court was hearing the petition filed by trader Aseem Juneja.
"STT is the only tax in India which is imposed on the sheer act of carrying out a profession and has to be paid irrespective of whether there is a profit made or not, which makes it almost punitive or deterrent in nature. Every tax in India is on the profit at the year end but STT is applicable even if a stock market trader is operating at a loss.... STT was introduced to combat tax evasion in the stock market. STT to stock market participants is what TDS is to salaried individuals. But the problem is that the TDS is refunded at the end of the year or adjusted with the income tax but no such provision is made for STT and the trader has to pay both. Other major stock markets like the USA, Germany, Japan, Singapore do not have a STT type tax on the transactions made on their stock markets," the petition said.
Garg pointed out the traders already pay tax in the form of STCG (Short Term Capital Gain) tax for any profit under one year and LTCG (Long Term Capital Gain) Tax on the profit made on a trade held for more than one year and STT is over and above STCG or LTCG which amounts to double taxation.
"It is clear from above that the Petitioner is paying taxes on the same transaction twice - in the form of STT (tax on the amount of shares bought or sold) and then STCG/LTCG on the profits of the same transaction. This violates the principle of double taxation as the petitioner is taxed twice on the same transaction. In short, two principles of taxation are being violated here - one double taxation and second that the tax is applied not on the profits (as it traditionally is) but on the mere transaction itself. This clearly violates articles 14, 21 and 19(1)(g) of the constitution," the petition said.
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