Bombay HC directs CBDT to reply on STT on physically-settled derivatives

Next hearing on August 16; Brokers' body moved court against NSE on levy, which is 10 times higher than 0.01% levy on cash-settled stocks

The Bombay High Court ordered the Central Board of Direct Taxes (CBDT) to provide clarity on the issue of securities transaction tax (STT) levy on physically-settled derivatives. The court on Monday heard an appeal filed by brokers' lobby Association of National Exchanges Members of India (Anmi) against the National Stock Exchange (NSE) after the bourse decided to levy the STT at 0.1 per cent on derivative contracts of stocks that are physically settled. This is 10 times higher than the 0.01 per cent STT levied on stocks that are cash-settled. 

The next hearing in the matter will take place on Thursday. The Bombay HC has directed CBDT to be present on Thursday and provide clarity on the issue based on which it will set a date for final directions in the matter.

Amni is of the view that there is currently no provision in the Finance Act to tax derivative trades on physical delivery. In a letter to market regulator Securities and Exchange Board of India (Sebi) dated July 17, Anmi had said that the exchange should not commence physical delivery in the F&O segment unless it issues a legal indemnity to its members from any future claims made by the Government of India for non-collection of STT on F&O delivery. It also noted that there is currently no law to deal with gains/losses resulting from delivery transactions in the F&O segment.

In April, the NSE had issued a list of 46 stocks whose derivatives contracts result in physical delivery of shares. Derivatives contracts for these stocks were for the first time settled with physical delivery last month.