Securities Transaction Tax (STT) is levied on the purchase and sale of securities listed on a recognized stock exchange in India. The tax is paid on the transaction value of the securities, and it is deducted at source by the stock exchange. Treatment of STT under the Income Tax Act: As a Cost for CRead more
Securities Transaction Tax (STT) is levied on the purchase and sale of securities listed on a recognized stock exchange in India. The tax is paid on the transaction value of the securities, and it is deducted at source by the stock exchange.
Treatment of STT under the Income Tax Act:
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As a Cost for Capital Gains Tax:
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STT is often treated as a cost incurred for transactions relating to the sale of capital assets (like shares or securities).
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If the securities transaction qualifies as a long-term or short-term capital gain (depending on the holding period), the STT paid on such transactions is not directly deductible as an expense under Section 37.
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Inclusion in Cost of Acquisition:
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While STT is not directly deductible as an expense, Section 48 of the Income Tax Act allows taxpayers to include STT as part of the cost of acquisition or cost of sale for the purposes of computing capital gains.
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This is particularly beneficial when calculating long-term or short-term capital gains as the STT paid can reduce the taxable capital gain.
Section 48 provides:
“The cost of acquisition and cost of improvement of a capital asset shall include any expenditure incurred in connection with the transfer of the asset, including the cost of STT paid during such transfer.”
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No Direct Deduction Under Business Expenses:
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If the transaction is a speculative or business-related transaction, the STT paid is still not deductible as a direct expense under Section 37. However, speculative losses can be set off only against speculative income.
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Banking Transaction Tax (BTT):
The Banking Transaction Tax (BTT) was a tax introduced in the past on certain banking transactions such as withdrawals exceeding a certain amount. However, it is no longer applicable as per the current tax regime under the Income Tax Act, as the tax was repealed by the Finance Act, 2009.
For transactions that might still involve banking fees or charges, the general deduction for business-related expenses is applicable under Section 37(1), provided that:
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The transaction is wholly and exclusively incurred for the purpose of business.
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The expenditure is not capital or personal in nature.
Under the Income Tax Act, the treatment of MTM losses depends on the nature of the asset and the transaction involved. Here’s a breakdown of how these losses are treated: 1. For Business or Profession: If a taxpayer is engaged in trading activities (for example, as a trader in stocks or securities),Read more
Under the Income Tax Act, the treatment of MTM losses depends on the nature of the asset and the transaction involved. Here’s a breakdown of how these losses are treated:
1. For Business or Profession:
If a taxpayer is engaged in trading activities (for example, as a trader in stocks or securities), MTM losses can generally be claimed as a deduction under Section 37(1) as a business expense. However, the following conditions must be met:
The asset is held as part of the trading business, not as an investment.
The loss is incurred in the course of business operations, and not for personal reasons.
The loss is actual (i.e., a real loss based on the current market price and not just an unrealized one) and can be substantiated with proper documents, such as trading statements.
2. For Speculative Transactions (Section 43(5)):
If the transaction is classified as speculative, then the treatment of MTM losses becomes more restrictive:
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See lessSpeculative losses are not deductible against any other income, except for speculative profits. These losses can only be set off against speculative profits in the same financial year or carried forward for a period of up to four subsequent years (as per Section 73).
The MTM loss in speculative transactions (such as in futures contracts or derivatives trading) would be treated as speculative loss unless the taxpayer qualifies as a trader (i.e., the trading activity is substantial and systematic).