BSE shares fall as govt said to be mulling higher taxation on F&O transactions

India’s National Stock Exchange (NSE) and BSE are the two largest stock exchanges in terms of the number of derivatives contracts traded.

BSE share price fell on June 20 after a news report said that the government is mulling changes that could eventually mean higher taxation on Futures & Opti0ns (F&O) transactions.

BSE stock was down 1.5 percent at Rs 2,670 in the afternoon trade, partially recovering from the day's low of Rs 2,592.

Earlier today, the Financial Express reported, citing unidentified sources, that the government is considering various options to discourage retail investors from participating in the F&O segment -- including reclassifying F&O as 'speculative income' instead of 'business income'.

It is to be noted that the 'business income' is taxed at the slab rates of 5/ 20/ 30 percent, per the tax assessee's income slab. On the other hand, speculative income is treated at par with lottery or crypto trading, and are taxed at a flat higher rate.

Further, gains from speculative income can be offset against losses only from that particular activity, and not other business income.

The government has repeatedly expressed concerns about the rising retail participation in the derivatives segment. The authorities worry about a widespread loss of wealth among retail derivatives traders if the markets were to crash.

The number of F&O traders in India jumped five-fold during FY19-FY22. Global derivatives trade organisation Futures Industry Association data showed that India’s National Stock Exchange (NSE) and BSE are the two largest stock exchanges in terms of the number of derivatives contracts traded. The combined volume of the two Indian bourses accounts for almost 85 percent of the global volume.

Finance Minister Nirmala Sitharaman said in May that the unchecked explosion in the retail F&O trading could weigh on investor sentiment and could also be challenging for household finances.

This week, Reserve Bank of India Governor Shaktikanta Das said that the RBI and SEBI are monitoring the high volume of F&O trading. Meanwhile, SEBI has already issued cautionary notes in investor interest, including a mandatory warning that around 90 percent retail investors lose money in F&O trading.