The National Stock Exchange (NSE) has cut the Securities Transaction Tax (STT) on delivery-based transactions to 0.1 per cent, with effect from July 1, it said in a communiqué to trading members.
This means on every transaction of Rs 1,000, there will be a saving of 25p each for buyer and seller. Experts feel the cut could help make arbitrage trades more viable and could eventually lead to an increase in volumes. The Bombay Stock Exchange is likely to act similarly.
This is the first such cut in the STT for delivery-based transactions since the tax was introduced in 2004. While STT for options were rationalised to some extent in 2008, it continued to be very high (0.125 per cent) in case of delivery-based transactions in equity and upon exercise of options.
C R Sasikumar, managing director & CEO of SBI-SG Securities, said, “The measure could have significant impact on the investing sentiments of our clients and could help deepen volumes.” He said the STT cut would meet a long-pending demand of stock market players to lower transaction costs. The Sensex gained 271 points on Friday, to close at 16,949.
Ajay Parmar of Emkay Global said the move would help the arbitrageurs. “Over a period of time this would help improve volumes to some extent, as the cost of capital comes down. However, for investors with a longer perspective, the change may not make much difference.”
Market participants incur certain fixed charges for every transaction, such as STT, stamp duty, depository charges, etc. These constitute the overall cost of trading in the Indian markets.
In line with the global trend, the cost of trading on Indian exchanges has declined over the years. Yet, trading costs in India remain relatively high, compared to other countries. In the run up to the budget, market participants noted the statutory levies, particularly the STT rate, had risen over the years, impacting overall trading costs. “There appears to be a case for review of the STT regime, as there are concerns that it may be raising businesses’ cost of capital and impairing the development and competitiveness of domestic financial markets, given increased cross-border mobility of capital,” a working paper presented by an exchange official had said at the time.