F&O trading: Govt's STT hike leaves traders confused

In the Finance Bill 2023, which was passed by Lok Sabha on March 24, securities transaction tax on sale of F&O contracts was hiked by up to 25 percent. But, the quantum of the hike has created confusion among traders.

As per the amendments, STT on the sale of options has been hiked to Rs 2,100 on a turnover of Rs 1 crore against an earlier levy of Rs 1,700. This indicates a 23.5 percent hike.

On sale of futures, the tax has been hiked by to Rs 1,250 on a turnover of Rs 1 crore against an earlier levy of Rs 1,000. This indicates a 25 percent hike.

Essentially, STT on sale of futures has been hiked from 0.01 percent to 0.0125 percent and in case of options it has been hiked from 0.017 percent to 0.021 percent.

The confusion on sale of options

"STT was already Rs 5000 on sale of options on a turnover of Rs 1 crore," pointed out users on Twitter. As per NSE, the STT on sale of options was revised in 2016 to 0.05 percent from 0.017 percent.

"If STT on sale of option is now Rs 2,100, then it is actually a reduction from Rs 5000," wrote a trader.

Speaking to Moneycontrol, Rajesh Bahety, MD, Crosseas Capital Services and Former President ANMI said, "There has been an error. The Finance Ministry is likely to issue an ordinance to fix the confusion."

The impact

"It is a double whammy. First, NSE removed the do not exercise option. Now, STT has been hiked. It is a retrograde step when markets are going through a turmoil," said Manish Shah, a SEBI-registered investment advisor and trader.

Also Read: Short Call: No DNE rule by NSE changes definition of options for buyers

However, it won't affect volumes and market sentiment. "Someone who is making Rs 1 crore of turnover on options premium, is already working with roughly Rs 5 crore margin. So any marginal hike is peanuts. It won't be a significant impact," a prop trader Bhaskar Radadiya said.

What is STT?

Introduced in 2004, STT is levied on transactions involving various types of securities. All stock market transactions that involve equity or equity derivatives such as futures and options are liable under STT, as are mutual fund transactions.

The government expects to collect Rs 27,625 crore from the securities transaction tax (STT) in FY24, which is 10.5 percent higher than the revised budget estimate of the preceding financial year.

The budget for FY23 projected collections of Rs 20,000 crore, which was revised to Rs 25,000 crore on February 1, 2023 - a jump of 25 percent. In FY22, the government collected Rs 23,191 crore.