Introduction of the tax:
The tax prevalence on the settlement of derivative contracts by taking physical delivery of securities is positioned to amplify tenfold when measured up tothose who settle in cash.
The Bombay High Court was notified by the Central Bureau of Direct Taxes (CBDT) that physical settlement in the equity and derivatives segments will pull towards the same securities transaction tax.
The delivery of shares worth Rs 1 crore will now be taxed Rs 10,000 as disparate to Rs 1,000 previously.
Petition filed by NSE and appointment of Bench members:
A petition has been filed by members of the National Stock Exchange (NSE). Justice MS Karnik and BR Gavai had been appointed as the two-member bench for the investigation into the matter. They had sought appropriate justification from the Central Bureau of Direct Taxes.
Followed by the exchange moved 46 stocks in the futures and options segment to the compulsory delivery category, the uncertainty over the tax liability on securities transactions came to the forefront.
This modification was made pertinent since July. The market regulator also passed an order through which equity derivatives were ordered to transfer to physical settlement in a falteredmethod.
Benchmark standard in collecting tax:
The existing rate in the derivatives segment will be the standard in collecting tax from clients. Members of the exchange will be accountable to pay the differential if the taxman makes an upward revision of the rate.
The exchange solicited the brokers to accumulate the tax from clients based on the rate applicable in the derivatives segment, and also made the members responsible to pay the differential if the taxman seeks a higher rate.
On the other hand, the tax department issued anelucidation that the settlement of derivative contracts by taking delivery of shares will not be different from the procedure pursued for equity contracts.
According to NSE sources:
Majority of the investors close out their positions before the expiry of the contract as an alternative by taking delivery of the securities., the total value of physically settled securities was Rs 240 crore for the month of June in the derivatives segment. The daily turnover was Rs 10 lakh crore for the period under contemplation.
The tax department elucidated that a derivative contract being settled by taking delivery of shares would not be diverse from taking delivery of shares in an equity contract.
What are the important things Investors have to be vigilant?
Investors generallychoose to close out the positions to the fore of the expiry of the contract, as an alternative of taking delivery of securities. For July, the total value of physically settled securities in the derivatives segment was Rs 240 crore. That measures up with the daily trading turnover of Rs 10 lakh crore. The August contracts expire this week - last Thursday of the month. (Today)
The below mentioned 46 shares F&O position should be cut before 4 days of expiry as per new rule of SEBI.
What is the Bad news for F&O traders?