Thursday, June 6, 2013

CTT Could Be Delayed To October 2013 - Commodity Transaction Tax

Punters may be able to breathe easy for a while longer as the new transaction tax on non-farm futures could be delayed with the administering body, Central Board of Direct Taxes, or CBDT, working out procedural details relating to how the levy would be collected, according to government sources. 

The imposition of CTT was announced by finance minister P Chidambaram during his presentation of the FY14 Budget in February. Along with CTT, Chidambaram reduced the Securities Transaction Tax (STT) in the equity derivatives segment, which was notified last month and became effective from June 1. However, there has been no notification on CTT even three months after its announcement. "It is likely that CTT could come into effect from the month of October" said one of the sources. 

The delay led to some commodity market officials doubting whether the tax could be made retrospective. However, an official from one of the leading commodity exchanges said they were told by income tax officials that since the nature of the tax requires it to be collected from a third party, it would not be imposed retrospectively. Exchanges are required to deduct both CTT and STT from brokers or trading members and deposit it with the income tax department. 

In the equity segment, STT was cut to Rs 10 per lakh from Rs 17 per lakh in FY14 Budget. CTT will be charged at the same rate on non-agri commodity futures. Effectively, traders will have to pay 0.01% tax, that is, Rs 10 for a transaction value of Rs 1 lakh. The current transaction cost (without any tax) is less than a third of this in commodity futures. Commodity exchanges had strongly resisted CTT imposition, but finance ministry was of the view that most non-agri trades were speculative in nature, so a tax was justified. 

Both NSE and BSE together pay STT between Rs 5,000 crore to Rs 7,000 crore and government could end up earning similar revenue from CTT once it is imposed.

Source : Economic Times

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