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Expert Exchange Home: » Direct Tax Ask a Question
AuthorQuestion Title
CA Prashant Shanbhag
Mangalore
Invitation to all my professional colleagues to make a representation to CBDT / Revenue Dept

Dear Friends, 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 ā€œSettlement 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 ā€œSettlement 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 ā€œIn the Moneyā€, with ā€œIn 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
ā€œSettlement Priceā€ with ā€œIn the Money Priceā€. Regards, CA Prashant Shanbhag
Replies
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


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