Despite waiving of the securities transaction tax (STT) on the strike price of unexercised options, the tax is expected to hurt more. Finance minister P Chidambaram has proposed in the Budget 2008-09 on Friday that the money paid as STT should be treated like any other deductible expenditure against business income. At present, it is given a rebate against tax liability. This will mean that STT will become more expensive as deductions under business income are only given a 30% rebate.
The move is expected to make it more expensive for traders who will now be unable to get a full rebate on STT paid, Bobby Parikh managing partner BMR Advisors & Co pointed out.
The government also hopes to earn more revenue through this and the Budget estimates for 2008-09 reveal that STT collections are expected to rise to a whopping Rs 9,000 crore in 2008-09 as compared to Rs 7,500 crore revised estimate for this fiscal.
However bringing some cheer to domestic investors, Chidambaram while leaving the STT rate unchanged has also proposed that the tax in the case of options, will be levied only on the option premium where the option is not exercised, and the liability will be on the seller. In a case where the option is exercised, the levy will be on the settlement price and the liability will be on the buyer.
The move is expected to cheer up the options market, having daily trading volumes of nearly Rs 8,000 crore.
STT is levied at 0.017% rate on both the strike price as well as the premium paid for buying the option and is borne by the seller at present.
Chidambaram has also proposed increasing the rate of short-term capital gains tax to 15% from the present 10%. Investors selling their securities within one year of buying them will have to shell out 15% of the amount as short-term capital gains.
The minister in his Budget speech also said, "The move will encourage investors to stay invested for a longer time." Parikh agreed and said, "This will now be more expensive for both domestic investors and foreign institutional investors (FIIs)."
In a post Budget press conference, Chidambaram however said the move would not hurt retail investors. FIIs too will continue to have the same exit pattern as price by earnings ratio are high and so a higher tax rate would justify a short-term sale, he added.
The proposal however did not go well with domestic bourses and the Sensex dipped close to 500 points within minutes of the announcement.
Making it costlier for investors, the Budget has also proposed instituting a commodities transaction tax (CTT) on the lines of STT. Taxable commodities transactions would include sale and purchase of options in goods, options in commodity derivatives and any other commodity derivatives in recognised exchanges. The tax rate would vary between 0.017% to 0.125%. With commodity exchanges booming and investments in them at an all time, analysts feel it is the right time to introduce the tax.
The changes in STT and the higher rate of short-term capital games will give Chidambaram extra resources, which will prove useful given that he has increased the income tax threshold and provided tax exemptions to the post office time deposit account scheme and the senior citizen savings scheme. These are expected to cost the exchequer about Rs 4,000 crore in 2008-09. While higher STT collections would bring in around Rs 1,500 crore, the rest would be made up by doubling the rate of short-term capital gains.
But to give some relief to corporates, the finance minister has proposed minor changes to exempt certain activities from the fringe benefit tax net.
Chidambaram has proposed exempting expenses and payments through pre paid meal cards such as Sodexho and FoodPlus Card from hospitality expenditure while calculating the tax. Amitabh Singh tax partner Ernst and Young pointed out that this would give more administrative convenience to companies.
Expenditure on providing crèche facility to children of employees, sponsoring a sportsman who is an employee and organising sports events for employees have also been exempted from the tax.
The Budget has also proposed exempting payments made for maintenance of guest houses while calculating the tax. Chidambaram has also proposed reducing the value of fringe benefits on spending on festival expenditure to 20% from the current 50%.
Providing further clarity on the fringe benefit tax (FBT) on employee stock options (Esops), Chidambaram has also said any amount recovered from expatriate employees for FBT on Esops issued by an Indian company can be offset by the expat while paying FBT on Esops issued to him or her by their parent company abroad.
Singh said, "It is a welcome move and will clear the path for expat employees who are currently paying tax twice because of a lack of clarity on the issue." He however added that it would be up to the foreign country to accept this as an offset.
http://in.news.yahoo.com/financialexpress/20080301/r_t_fe_bs_budget08/tbs-fm-dangles-carrot-n-stick-for-invest-7435665.html
The move is expected to make it more expensive for traders who will now be unable to get a full rebate on STT paid, Bobby Parikh managing partner BMR Advisors & Co pointed out.
The government also hopes to earn more revenue through this and the Budget estimates for 2008-09 reveal that STT collections are expected to rise to a whopping Rs 9,000 crore in 2008-09 as compared to Rs 7,500 crore revised estimate for this fiscal.
However bringing some cheer to domestic investors, Chidambaram while leaving the STT rate unchanged has also proposed that the tax in the case of options, will be levied only on the option premium where the option is not exercised, and the liability will be on the seller. In a case where the option is exercised, the levy will be on the settlement price and the liability will be on the buyer.
The move is expected to cheer up the options market, having daily trading volumes of nearly Rs 8,000 crore.
STT is levied at 0.017% rate on both the strike price as well as the premium paid for buying the option and is borne by the seller at present.
Chidambaram has also proposed increasing the rate of short-term capital gains tax to 15% from the present 10%. Investors selling their securities within one year of buying them will have to shell out 15% of the amount as short-term capital gains.
The minister in his Budget speech also said, "The move will encourage investors to stay invested for a longer time." Parikh agreed and said, "This will now be more expensive for both domestic investors and foreign institutional investors (FIIs)."
In a post Budget press conference, Chidambaram however said the move would not hurt retail investors. FIIs too will continue to have the same exit pattern as price by earnings ratio are high and so a higher tax rate would justify a short-term sale, he added.
The proposal however did not go well with domestic bourses and the Sensex dipped close to 500 points within minutes of the announcement.
Making it costlier for investors, the Budget has also proposed instituting a commodities transaction tax (CTT) on the lines of STT. Taxable commodities transactions would include sale and purchase of options in goods, options in commodity derivatives and any other commodity derivatives in recognised exchanges. The tax rate would vary between 0.017% to 0.125%. With commodity exchanges booming and investments in them at an all time, analysts feel it is the right time to introduce the tax.
The changes in STT and the higher rate of short-term capital games will give Chidambaram extra resources, which will prove useful given that he has increased the income tax threshold and provided tax exemptions to the post office time deposit account scheme and the senior citizen savings scheme. These are expected to cost the exchequer about Rs 4,000 crore in 2008-09. While higher STT collections would bring in around Rs 1,500 crore, the rest would be made up by doubling the rate of short-term capital gains.
But to give some relief to corporates, the finance minister has proposed minor changes to exempt certain activities from the fringe benefit tax net.
Chidambaram has proposed exempting expenses and payments through pre paid meal cards such as Sodexho and FoodPlus Card from hospitality expenditure while calculating the tax. Amitabh Singh tax partner Ernst and Young pointed out that this would give more administrative convenience to companies.
Expenditure on providing crèche facility to children of employees, sponsoring a sportsman who is an employee and organising sports events for employees have also been exempted from the tax.
The Budget has also proposed exempting payments made for maintenance of guest houses while calculating the tax. Chidambaram has also proposed reducing the value of fringe benefits on spending on festival expenditure to 20% from the current 50%.
Providing further clarity on the fringe benefit tax (FBT) on employee stock options (Esops), Chidambaram has also said any amount recovered from expatriate employees for FBT on Esops issued by an Indian company can be offset by the expat while paying FBT on Esops issued to him or her by their parent company abroad.
Singh said, "It is a welcome move and will clear the path for expat employees who are currently paying tax twice because of a lack of clarity on the issue." He however added that it would be up to the foreign country to accept this as an offset.
http://in.news.yahoo.com/financialexpress/20080301/r_t_fe_bs_budget08/tbs-fm-dangles-carrot-n-stick-for-invest-7435665.html
