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Securities Transaction Tax

The government recently hiked the securities transaction tax (STT) by 23.52 percent on the sale of options and 25 percent on the sale of futures contracts.

About the ‘Securities Transaction Tax’ -

  • It is a direct tax charged on the purchase and sale of securities listed on the recognised stock exchanges in India.
  • It is levied and collected by the central government of India.
  • STT is governed by Securities Transaction Tax Act (STT Act), and STT Act has specifically listed various taxable securities transactions, i.e. transactions on which STT is leviable.
  • Taxable securities include equities, derivatives, or equity-oriented mutual funds investment units (excluding commodities and currency).
  • The rate of taxation is different for different types of securities.
  • STT is not applicable to off-market transactions or to commodity or currency transactions. 
  • The liability of applying the STT is on the broker when the client undertakes transactions in the stock market. The collected amount is then paid to the government.
  • The charges and rate of STT are reflected on the contract notes which a broker provides to its clients for every execution of trades.
What is Futures and Options Trading?

  • Futures and options are the major types of stock derivatives trading in a share market.
  • These are contracts signed by two parties for trading a stock asset at a predetermined price at a later date.
  • It provides individuals to reduce future risk with their investment through pre-determined prices. 
  • Future and options in the share market are contracts that derive their price from an underlying asset (known as underlying), such as shares, stock market indices, commodities, ETFs, and more.

Future v/s Option —

  • Future and option trading are different in terms of obligations imposed on individuals. 
  • While futures act as a liability on an investor, requiring them to follow up on a contract by a pre-set due date, an options contract gives an individual the right to do so (provides a buyer with a choice to do the same, if he/she profits from a trade.)
What are ‘derivatives'?

  • Derivatives are financial contracts set between two or more parties that derive their value from an underlying asset, group of assets, or benchmark.
  • A derivative can trade on an exchange or over the counter.
  • Prices for derivatives derive from fluctuations in the underlying asset.
  • Common derivatives include futures contracts, forwards, options, and swaps.

Debt mutual funds

As per the amendments made in Budget 2023, no benefit of indexation for the calculation of long-term capital gains tax on debt mutual funds will be available for investments made on or after April 1, 2023.

About Debt mutual funds -

  • Debt funds are mutual fund schemes which invest in fixed-income generating securities such as Commercial Papers (CP), Certificate of Deposit (CD), Corporate Bonds, T-Bills, government securities and other money market instruments.
  • These instruments have a fixed maturity date and interest rate that the buyers could earn till the maturity of the security.
  • They are considered to be less volatile than equity funds and are hence ideal for investors who are relatively risk-averse and are looking for stability in their investments.
Equity MFs & Debt MFs -

  • Equity mutual funds are equity-oriented mutual funds that principally invest in shares.
  • Debt mutual funds invest primarily in debt securities such as government and corporate debt.
  • In terms of safety, debt mutual funds score higher than equity mutual funds. For instance, when the market falls, the Net Asset Value (NAVs) of your equity funds fall sharply, whereas in case of debt funds, the fall is not as sharp.
  • However, debt funds can offer only moderate returns, while equity funds, which are highly risky, offer high returns over longer time horizon.
What is Indexation Benefit?

  • Inflation reduces the purchasing power of money. So, at the time of redeeming any investment, inflation needs to be considered. For example, if you have invested Rs. 100 in Year 1 and get a return of Rs. 110 in Year 5, the return is not exactly Rs. 10.
  • This is because the purchasing power of Rs. 110 would have reduced with time due to inflation.
  • Indexation benefit is applied to the investment amount to tax your returns fairly, which factors in inflation.
  • Basically, indexation helps you to calculate the new value of your investment, considering inflation and also help to get real capital gain.
What is Capital Gains tax?

  • The capital gains tax is the levy on the profit that an investor makes when an investment is sold. It is owed for the tax year during which the investment is sold.
  • It applies to capital assets, which include stocks, bonds, digital assets like cryptocurrencies and NFTs, jewellery, coin collections, and real estate.
Types of capital gain tax —

  • Long-term Capital Gains Tax — It is a levy on the profits from the sale of assets held for more than a year. The rates are 0%, 15%, or 20%, depending on the tax bracket.
  • Short-term Capital Gains Tax — It applies to assets held for a year or less and is taxed as ordinary income.

Unlawful Activities Prevention Act

The Supreme Court of India recently ruled that mere membership in an unlawful association is sufficient to constitute an offence under the stringent provisions of the Unlawful Activities Prevention Act (UAPA), 1967.
  • The judgement was based on an intra-court reference made in 2014.
  • According to the apex court, an organisation is declared unlawful and banned only after the Centre is satisfied that it is indulging in unlawful activities against the sovereignty and integrity of India.
  • The declaration of an organisation or association as unlawful is publicly notified by the Centre and this naturally leads to the conclusion that every member of the organisation would know about the ban.
  • But a person choosing to continue (a conscious decision) as a member despite knowing about the ban shall be punishable with an imprisonment of up to 2 years and fine (under Section 10(a)(i) of the UAPA).
  • Such a person cannot later claim that the law has a chilling effect on his fundamental right of association [Article 19 (1)(c)].
  • Under Article 19(4), the State may by law impose reasonable restrictions on this [Article 19 (1)(c)] right in the interest of public order or morality or the sovereignty and integrity of India.
  • The court clarified that persons who had left the organisation and were not members at the time it was declared unlawful, cannot be held criminally liable under Section 10(a)(i) of the UAPA.

About Unlawful Activities Prevention Act (UAPA) -

  • The UAPA was enacted in 1967.
  • It lays down the definitions and rules for designating an organisation as an "unlawful association" if it is engaged in certain types of activities.
  • ‘Unlawful activity’ is defined as any action taken by an individual or association – through an act, words, spoken or written, or by signs or visible representation – which is intended to, or supports a claim to, bring about the cession of a part of the territory of India, or the secession of a part of the territory of India from the Union, or which incites any individual or group of individuals to bring about such cession or secession.
  • It covers activities which disclaim, question, disrupt or are intended to disrupt the sovereignty and territorial integrity of India, and which cause or intend to cause disaffection against India.
  • In 2004, the UAPA was amended, and 'terrorist activities' were brought within its fold, under which 34 outfits, including the Lashkar-e-Taiba and the Jaish-e-Mohammad, were banned.
  • Under the Act, the central government may designate an organisation as a terrorist organisation if it —
  1. Commits or participates in acts of terrorism;
  2. Prepares for terrorism;
  3. Promotes terrorism;
  4. Is otherwise involved in terrorism;
  5. The 2019 Amendment gave the Home Ministry the power to designate individuals as terrorists.
  6. The Act extends to the whole of India.
  7. It also applies to citizens of India who are abroad, persons in service of the Indian government, and persons on ships and aircraft registered in India.

Armed Forces (Special Powers) Act, 1958 (AFSPA)

The Centre has decided to further reduce the jurisdiction of ‘disturbed areas’ under the Armed Forces (Special Powers) Act, 1958 (AFSPA) in Assam, Nagaland and Manipur.

  • The Centre has further reduced the number of areas in Assam, Nagaland and Manipur that were declared disturbed areas under the AFSPA due to an improvement in the security situation.
  • Both State and Central governments can issue notifications regarding the AFSPA.
  • Currently, the MHA issues periodic ‘Disturbed Area’ notifications to extend the AFSPA only for Nagaland and Arunachal Pradesh.
  • The notifications for Manipur and Assam are issued by the respective State Governments.
  • With the latest decision, starting April 1, the Disturbed Areas notification will be lifted from —
  • One more district in Assam,
  • Four more police stations in Manipur and
  • Three more police stations in Nagaland.
  • On the other hand, one police station in Arunachal Pradesh — Chowkham — was declared a Disturbed Area under the Act.
Armed Forces (Special Powers) Act, 1958 [AFSPA] -
  • The Armed Forces (Special Powers) Act was enacted in 1958 to bring under control what the government of India considered disturbed areas.
  • AFSPA was first implemented in the Northeast, and then in Punjab.
  • Under its provisions, the armed forces have been empowered to open fire; enter and search without warrant, and arrest any person who has committed a cognisable offence.
  • Prosecution of the officer on duty needs prior permission of the Central Government.
States where AFSPA is in effect -

  • AFSPA can be implemented in an area after it has been declared as disturbed.
  • Before the March 2023 notification, States under AFSPA included —
  • Assam, Nagaland, Manipur (excluding seven assembly constituencies of Imphal),
  • Arunachal Pradesh (only the Tirap, Changlang and Longding districts plus a 20-km belt bordering Assam), and Jammu and Kashmir.
  • It was completely lifted from Meghalaya in April 2018. It was repealed in Tripura in 2015
Disturbed Area -
  • A disturbed area is one which is declared by notification under Section 3 of the AFSPA.
  • Section (3) of the AFSPA Act empowers the governor of the state or Administrator of Union territory to issue an official notification on The Gazette of India.
  • Following which the centre has the authority to send in armed forces for civilian aid.
  • The state or central government considers those areas as disturbed by reason of differences or disputes between members of different religious, racial, language or regional groups or castes or communities.
  • Once declared ‘disturbed’, the region has to maintain status quo for a minimum of three months, according to The Disturbed Areas (Special Courts) Act, 1976.
  • The state governments can suggest whether the AFSPA is required to be enforced or not.
  • But under Section (3) of the APSPA, their opinion can still be overruled by the governor or the centre.
Controversial provisions of AFSPA -

  • Section 3 – It empowers the Centre to declare any area as Disturb Area without taking consent of the concerned state.
  • Section 4 – Accords certain power to an authorised officer which also include power to open fire at any individual even if it results in death.
  • Under this section, the officer has also been given the power to (a) arrest without a warrant; and (b) seize and search without any warrant any premise.
  • Section 7 – It mandates prior executive permission from central or state authorities for prosecution of a member of the security forces.
Significant improvement in the security situation in the North-eastern states -

  • Compared to the year 2014, there is a reduction of 76 per cent in the extremist incidents in the year 2022.
  • Similarly, the deaths of security personnel and civilians have come down by 90 per cent and 97 per cent respectively during this period.
  • Several peace accords had been implemented in the northeast States in the past four years and as a result, most extremist groups had laid down arms.
  • Since 2014, around 7,000 insurgents had surrendered.

84th CRPF Day

Union Home Minister Amit Shah attended the 84th Central Reserve Police Force (CRPF) Day in Chhattisgarh’s Bastar district.

About the Central Reserve Police Force (CRPF) -

  • CRPF is one of the oldest Central para military forces (now termed as Central Armed Police Force) and it comes under the Ministry of Home Affairs.
  • CRPF came into existence as Crown Representative’s Police on 27th July 1939. It became the Central Reserve Police Force on enactment of the CRPF Act in December 1949.
  • It is All India in character, both in deployment and in its composition.
  • CRPF has, over the years, acquired the distinction of being perhaps the most acceptable Force, by the people and the State administrations. This is due to its unique capability to quickly adapt to various situations, and also, to work in perfect harmony with the State Police.
Duties performed by the CRPF -
  • Crowd & Riot control
  • Counter Militancy / Insurgency operations/Dealing with Left Wing Extremism
  • Overall co-ordination of large-scale security arrangement especially with regard to elections in disturbed areas.
  • Protection of VIPs and vital installations.
  • Checking environmental de-gradation and protection of local Flora and Fauna
  • Fighting aggression during War time
  • Participating in UN Peace Keeping Mission
  • Rescue and Relief operations at the time of Natural Calamities.