IDRs TO ATTRACT STT

Investors of Indian Depository Receipts(IDR) will be liable to pay Securities Transaction Tax (STT). The Central Board of Direct Taxes is likely to soon clear the air on levy of STT on trading of IDRs on stock exchanges. A finance ministry official told ET that the current tax provision did not explicitly say if STT was to be levied on IDRs. A CBDT clarification would end this uncertainty on the issue of taxation for investors, he added. Moreover, investors paying STT would be able to get respite on capital gains tax. If equity or preference shares in a company are held for more than 12 months then it is known as long term capital asset. Sale of an asset gives rise to long term capital gains. Long- term capital gains arising on transfer of equity shares is not be chargeable to tax from assessment year 2005-06, if STT has been paid on the transaction carried on a stock exchange. The Securities Transaction Tax was introduced by the Finance Act (No.2), 2004. All transactions including purchase and sale of equity shares in a company, purchase and sale of units of an equity growth fund, sale of a unit of an equity growth fund to the mutual fund and sale of a derivative attract STT at prescribed rates.

ARTICLE BY: RAGHAV SHARDA