Invitation to all my professional colleagues to make a representation to CBDT / Revenue Dept
One of my client came to me with a Contract Note from her Stock Broker, in which Rs. 27,850/- has been charged as STT on a transaction value of Rs. 15,962/-, where the prescribed rate of STT is 0.125% for Option Exercise. Thus STT amount should have been Rs.20/- only as against Rs. 27,850/- charged in the Contract Note.
She had received reply from her Broker that they have charged as charged by the Stock Exchange, NSE.
I took up the matter with NSE officials and discussed in length about this unreasonable STT, sometimes up to 100% or more, of the amount received as consideration on Option Exercise.
NSE officials agreed that this is unreasonable STT, but they are helpless as the wording in Sec. 99 (a) (ii) of STT Act says STT on option exercise should be charged on āSettlement Priceā
On detailed verification, one can see that Consideration Received or Transaction amount in case of Option Exercise is NOT "Settlement Price", but it is "In the Money Price" which is also recorded in the Contract Note as Consideration.
The "Settlement Price" is only one of the components to arrive at the Consideration and NOT the Consideration itself.
On exercise of Option, the holder of the option gets consideration as "In the Money Price" as below (which is considered as Price consideration in the Contract Note):
Consideration (In the Money Price) = Diff between Settlement Price & Strike Price
i.e. Net of Settlement Price and Strike Price.
However, Sec 99 (a) (ii) of STT Act says STT should be charged on āSettlement Priceā, which makes STT sometimes up to 100% or more. This is due to the error in the wording in Sec 99 (a) (ii) of STT Act.
If I explain the same with real example of above mentioned Contract Note given my client, it would be more clear:
She Bought 920 Qty Bank Nifty Call Option with Strike Price of 24200 (Expiry:10 Aug 2017) at an average price of Rs. 21.65 by paying totally Rs. 19,923/-
On expiry day i.e. 10th Aug 2017, since Bank Nifty closed at 24217.35 (Settlement Price), and since her Option of Call at Strike Price of 24200 was āIn the Moneyā, with āIn the Money Priceā of Rs. 17.35 [24217.35 (-) 24200] She got Rs. 17.35 multiplied by Qty 920 = Rs. 15,962/- as Consideration for the Option she held which is reflected in her Contract Note.
STT @ 0.125% should have been charged on Consideration of Rs.15,962/- (Rs. 17.35x920) which comes to Rs. 20/- only
But STT is charged @0.125% on (24217.35x920= on Rs.2,22,79,962/- ) amounting to Rs. 27,850/-
She bought Options for Rs. 19,923/- and got Option exercise consideration of Rs. 15,962/- (making loss of Rs. 3,961/-) But STT @0.125% is charged on Rs. 2,22,79,962/- (Two Crore Twenty Two Lakhs Seventy Nine Thousand Nine Hundred Sixty Two) when she has not done any such value of transaction at all.
The Basic issue here is charging STT on one of the components of the Consideration Received instead of actual consideration received.
If the wording "Settlement Price" in Section 99 (a) (ii) of STT Act is replaced with "In the Money Price" or "Consideration Received" then this issue of wrong charge would be avoided.
Kindly give your comments on the same and if you agree, I appeal to all my professional colleagues to express your support to make a representation to Revenue Dept / CBDT to amend Sec. 99 (a) (ii) of STT Act to replace wording āSettlement Priceā with āIn the Money Priceā.
CA Prashant Shanbhag
Vijaya Kamat Bangalore
This is absurd tax. Undoubtedly Sec 99 (a) (ii) should be amended to consideration received / In the Money Price.
I strongly support this move and request you to please go ahead with a representation to amend that sec. in STT Act