STT on physically-settled derivatives: HC defers hearing in Anmi-NSE matter

The Bombay High Court on Thursday deferred hearing in a matter between the brokers' lobby, Association of National Exchanges Members of India (Anmi), and the National Stock Exchange (NSE) over the applicability of securities transaction tax (STT) on physically-settled derivatives.

Since the counsel for the Central Board of Direct Taxation (CBDT) was not present, the court directed the Additional Solicitor General (ASG) to be present. The ASG assured return on August 28. The courts acknowledged the importance and urgency of clarification before the end of this month.

The legal tussle is over NSE’s decision to levy an STT of 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.

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.