Previous Year Question
Consider the following statements. In India, taxes on transactions in stock exchanges and futures markets are:
levied by the Union.
collected by the States.
Which of the statement(s) given above is/are correct?
Only 1
Only 2
Both 1 and 2
Neither 1 nor 2
Correct Answer: A
Detailed Solution
Statement 1 is correct. Entry 90 of the Union List in the Seventh Schedule to the Constitution covers taxes, other than stamp duties, on transactions in stock exchanges and futures markets. Since this subject belongs to the Union List, Parliament possesses the legislative power to impose such taxes.
Statement 2 is incorrect. Taxes imposed on these transactions are not collected by the States. For example, the Securities Transaction Tax (STT) is a Central tax. A recognised stock exchange or another prescribed person collects it on eligible transactions and remits it to the Central Government.
A distinction must be made between two categories of levies:
Taxes other than stamp duties on transactions in stock exchanges and futures markets fall under Entry 90 of the Union List.
Rates of stamp duty relating to specified financial instruments are separately covered by Entry 91 of the Union List.
STT was introduced through the Finance (No. 2) Act, 2004. It applies to specified securities transactions, which may include eligible equity-derivative transactions.
The Commodity Transaction Tax (CTT) became effective under the Finance Act, 2013. Therefore, while explaining this 2010 question, it would be incorrect to suggest that CTT was already operational at that time.