Context:

The Supreme Court of India has recently decided to entertain a challenge to the constitutional validity of the Securities Transaction Tax (STT). The Court has issued a notice to the Centre, asking for a response within four weeks.

About (Securities Transaction Tax) STT:

STT (Securities Transaction Tax) is a tax levied on the value of securities transacted through recognized stock exchanges in India.

·        It was introduced in 2004 under the Finance Act, primarily to curb tax evasion in capital gains.

·        For delivery‐based equity trades, STT is currently charged at 0.1% on both buy and sell sides.

The Core Legal Challenge

Double Taxation: The petitioner argues that STT results in double taxation: once in the form of STT on the transaction value, and again via capital gains tax on profits from that transaction.

o   The contention is that taxing both the trade event and the gain from that event violates principles of tax equity.

Tax on Act, Not Profit: Unlike conventional taxes that are imposed on net income or gains, STT is levied on the mere act of trading—even if the trade results in a loss.

o   The petitioner calls it punitive or deterrent in nature, especially since it applies regardless of profit or loss.

Violation of Fundamental Rights: The petition asserts STT breaches Article 14 (equality before law), Article 19(1)(g) (right to trade or practice a profession), and Article 21 (right to life, dignity).

The argument is that arbitrary taxation on the act of trade, regardless of outcome, impinges on these rights.

Lack of Adjustment or Refund Mechanism: A key grievance is that STT does not allow adjustment or refund against one’s final tax liability, unlike TDS (Tax Deducted at Source) in other contexts, where excess deduction is adjusted or refunded.

Conclusion:

The Supreme Court's decision to examine the constitutional validity of the Securities Transaction Tax (STT) marks a significant moment in India's fiscal and capital markets jurisprudence. This case will determine the balance between the state's power to tax and individual rights, setting a precedent for the limits of transactional taxation in India.