Budget 2012: STT reductiion below market expectations

The 20% cut in securities transaction tax ( STT) has been below market expectations as brokers were expecting at least 40% reduction in the tax.

The proposal is expected to only marginally push delivery-based volumes in the cash segment in which the new rate of STT of Rs 100 per Rs 1 lakh turnover will be applicable in 2012-13. Currently, delivery-based turnover accounts for less than 20% of the total cash turnover on the bourses, according to brokers.

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In his budget presented on Friday, FM Pranab Mukherjee announced a relaxation in the STT rates from the existing 0.125% on delivery-based turnover in the cash segment, to 0.10%. This will help reduce transaction cost marginally, say brokers.

"Cash volumes will go up marginally as the STT reduction is below market expectations" said Narayan SA, president -- retail banking and capital markets -- Kotak Mahindra Bank.

Most of the brokers are concerned that the STT reduction is not carried out across all the categories of turnover as it was generally expected after the overall business on the country's leading stock exchanges declined substantially amid weak market conditions last year.

However, the government refrained itself from making any significant changes in the rates, given that STT has proved to be the most simplest and convenient source of revenue for the government.