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A financial transaction tax is a charge placed on a definite type of monetary transaction for a specific reason. The concept has been most commonly associated with the financial sector; it is not usually considered to include consumption taxes paid by consumers. In Developing countries, which also did nothing to cause this collapse, the price has been very severe with funds for health, development, infrastructure and climate change being cut or suspended. There are several types of financial transaction taxes. Each has its own purpose. Some have been implemented, while some are only proposals. Concepts are found in various organizations and regions around the world. Some are domestic and meant to be used within one nation; whereas some are multinational.

Financial Transaction Taxes are one of the only some available options that could generate financial resources in sufficient quantity to make a meaningful contribution to the continuing costs of the global economic crisis. This would ensure the currently under-taxed financial sector pay a greater and fairer share of the costs that their actions caused. Importantly, the Financial Transaction Taxes would also help to regulate markets, curbing speculative market behaviour and short- termism, and instead encourage more sustainable and equitable long-term economic growth. There are several types of financial transaction taxes.

Each has its own purpose. Some have been implemented, while some are only proposals. In general, some market analysts argue that technical and noise trading causes deleterious market volatility based on short term de-stabilising speculation and that Financial Transaction Tax would contain this. And, on a global basis, its revenue productivity would be high. Further, the tax rates would need to be very small so that Financial Transaction Tax could have only small adverse efficiency effects and on the other hand some oppose that it is inefficient since it would raise transactions costs, and reduce market liquidity. It would also depress share prices, increase capital costs, and decrease investment. If country tax rates are different, it would cause unwarranted capital flows. The final tax incidence between companies and their clients would depend on the strength of various responses or values of elasticizes. And, if Financial Transaction Tax were to raise significant amounts of revenue, then one cannot convincingly argue that efficiency costs would remain low. Financial Transaction Taxes designed to discourage certain types of financial transactions are likely to interfere with the ability of financial markets to allocate resources to their most highly valued uses; and the revenue-raising potential of Financial Transaction Taxes depends strongly on how the tax affects transaction volume, and past Financial Transaction Taxes have often resulted in the diversion of transactions to non-taxed products and jurisdictions.


It was in the news that the basic demand of the Robin Hood Tax movement is very simple: request or make Banks pay a 0.1 percent to 0.01 percent tax on all financial transactions. This was based on the EU demand for imposing a 0.1 percent tax by 2014. The Indian economy is growing at well over 8 per cent. However, there is too much volatility in terms of FDI flowing in and taken out suddenly, which creates a lot of pressure on the financial commitments domestically. Hence, Financial Transaction Tax can reduce this pressure to a great extent.


The Indian economy is growing at well over 8 per cent. In spite or because of this, it does not produce enough of what it requires. So it required to import a lot of things. But it doesn’t export enough to pay fully for these imports. The gap in what it owes to foreigners is called the current account deficit. It is made up by large inflows of foreign money. Most of it comes into the capital market. Small amounts of direct foreign investment in building factories also help. While foreign direct investment (FDI) is here to stay, the capital market inflows come and go at will. This coming and going is called volatility.

Volatility causes serious problems for the management of the economy because of its unpredictable nature. To tackle it, governments enforce what are called financial transactions taxes .Since 1 October 2004 India levies financial transaction taxes of up to 0.125% payable on the value of taxable securities transaction made through a recognized national stock exchange. The securities transaction tax is not applicable on off-market transactions. The tax rate is set at 0.125% on a delivery-based buy and sell, 0.025% on non-delivery-based transactions, and 0.017% on Futures and Options transactions. The tax has been criticized by the Indian financial sector and is currently under review. India is still lack convincing evidence regarding the effects of Financial Transaction Taxes, in particular what impact they have on volatility of financial markets, or what long run revenue potential these taxes have. It seems to be disliked even by the policymakers that use them for their damaging efficiency ramifications. Non-tax structural institutions, rather than a tax, are needed to seek and support the trajectory out of deep recession between the two, the non-tax regulatory route has greater advantages than Financial Transaction Tax does. If both instruments are to be used, a very small, temporary, global Financial Transaction Tax with clearly earmarked equity goals may be envisaged. India, for instance, introduced a Securities Transaction Tax on equity market trading a decade ago. The Securities Transaction Tax has undergone modifications in tune with the market developments but it is still being levied on listed securities on stock exchanges and in units of mutual funds. In 2013, India also introduced a Commodity Transaction Tax of 0.01 per cent on commodity futures contracts — including gold, copper and oil — traded in Indian markets. The securities transaction tax was introduced in India a few years ago, to stop tax avoidance of capital gains tax. Earlier, many people usually didn’t declare their profits on the sale of stocks and avoided paying capital gains tax. The government could tax only those profits, which have been declared by people.

To stop this situation, the then Finance Minister P Chidambaram in the Union Budget 2004-05—introduced Securities Transaction Tax. Transactions in stock, index options and futures would also be subject to transaction tax. This tax is payable whether you buy or sell a share and gets added to the price of the stock at the time the transaction is made. Since brokers have to automatically add this tax to the transaction price, there is no way to avoid it. The Finance Ministry has supported the introduction of the Securities Transaction Tax to simplify the tax regime on financial market transactions. According to the ministry, Securities Transaction Tax is a clean and efficient way of collecting taxes from financial markets. In the words, Securities Transaction Tax is a neat, efficient and easy-to-administer tax and it has the great advantage of virtually eliminating tax avoidance.

Securities Transaction Tax is levied on every purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives or equity-oriented mutual funds units. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities. Securities Transaction Tax is deducted at source by the broker or AMC, at the time of the transaction itself, the net result is that it pushes up the cost of the transaction done. According to the Securities Contracts (Regulation) Act, 1956, Securities Transaction Tax would be applicable on Shares, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate, Derivatives, Units or any other instrument issued by any collective investment, scheme to the investors in such schemes, Government securities of equity nature, Rights or interest in securities, Equity-oriented mutual funds. Security receipt as defined in section 2(z g) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.It is not applicable for any off-market transaction.

Finance Minister P Chidambaram in the Union Budget 2013-14 has cut the securities transaction tax on equities and mutual fund units. Securities Transaction Tax decline on ETF is expected to enhance returns with lower transaction costs and charge on equity futures is cut from 0.17% to 0.1%. In the previous Budget, Securities Transaction Tax was slashed by 0.17% from 0.125% on cash delivery transactions and also on redemption of mutual funds or ETFs (exchange traded funds) at fund counters is reduced from 0.25% to 0.001%, while Securities Transaction Tax on sale of MFs or ETFs on stock exchanges is cut from 0.1% to 0.001% levied only on the seller.

So the next time, broker or asset management company sends transaction bill or statement, remember that the extra bit you are paying over and above transaction is nothing but the tax that has been levied. Whether it is purchase and sale of shares or mutual fund units, Securities Transaction Tax will stay and cannot be avoided. At the end of the year, the broker can be asked to give a certificate of the Securities Transaction Tax that you have paid through the year. This amount can be to deduct from your short term capital gains and get a tax credit.

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