Budget 2013-14: FM cuts STT, introduces CTT on non-agri commodities

So as to encourage investment in the stock market, Finance Minister P Chidambaram today cut the securities transaction tax on equities and mutual fund units. The charges are cut from 0.17 percent to 0.1 percent.

In the previous Budget , STT was slashed by 20% to 0.17% percent from 0.125 percent on cash delivery transactions.

The capital market has recorded very low performance over the past few years on account of weak demand and poor conditions in the secondary market, and a cut in STT will help boost investment sentiment in the country. It will lead to a more developed, mature and deep stock market by encouraging investors to return to the stock market.

Furthermore, this move will aid the government in its disinvestment program, as higher demand means stake sales, further on issues and initial offers will see higher subscription. Therefore, even though a cut in STT reduces the government’s revenue, it will help curb the fiscal deficit indirectly via the disinvestment route.

The government also introduced a tax on transaction of non-agricultural commodities on exchanges so as to facilitate a more open and transparent trading process, especially in gold contracts.

However, some experts are of the belief that this move will reduce liquidity in the market, and widen the bid-ask price spread. This move could also reduce demand for trading of commodities on derivative exchanges

Commodity transaction tax, or CTT, was originally proposed in Union Budget 2008 but abolished in the Budget of 2009 based on the recommendation of the Prime Minister’s Economic Advisory Council.