Can You Claim STT As Cost of Share Purchase?

Q. We are a company doing investments in shares i.e. we buy shares, take delivery and sell after few/many months. Our Assessing Officer says that we should add the Securities Transaction Tax paid on these transaction to the cost price (just like service tax and education cess). Is he right? In our view, STT is a tax amount not to be used in any computation.

Ans. The computation of capital gains is done under section 48 of the I T Act. The Securities Transaction Tax was brought in from Assessment Yr 2004-05. A mechanism of deduction u/s 88E was also provided. Simultaneously, a provision under section 48 was inserted which clearly excluded STT from computation of capital gains. The said proviso is as under
48. The income chargeable under the head Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :

(i) Expenditure incurred wholly and exclusively in connection with such transfer;

(ii) The cost of acquisition of the asset and the cost of any improvement thereto:

"Provided also that no deduction shall be allowed in computing the income chargeable under the head Capital gains in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004."


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