Relief for F&O traders, STT kept unchanged in the Interim Budget

Earlier revision

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

The STT had been kept unchanged in the last Budget but the tax rates were revised later that year, through an amendment in the Finance Bill in March 2023.

STT accounts for just 1.5 percent of the estimate of the direct tax collection of Rs 18.24 lakh crore.

It might look like it is too small a percentage of the total but there are ancillary revenue streams such as from Goods and Services Tax (GST), stamp charges and exchange transaction fees. In an earlier interaction with Moneycontrol, Rajesh Baheti, Managing Director at Crosseas Capital Services, had said that any further hike in STT might not sit well with proprietary traders that make up 40-45 percent of F&O volumes.

In an earlier interaction with Moneycontrol, Trivesh D, Chief Operating Officer of Tradejini, a broking firm, had said that when STT is hiked, it does not affect option buyers as much as it affects high-frequency traders and those selling options regularly. These groups are more sensitive to changes in market conditions and are likely to be impacted the most.

Also read: Big Picture | Options trading mania cooling off; amateur traders exiting as profits shrink

The real effect of the STT hike becomes visible if there is a bear market, added Trivesh.

“I firmly believe that for India to establish itself as a price influencer for its produced and consumed commodities, it is imperative to maintain low transaction costs,” he had said.