Government hikes STT on F&O trades
The recently levied STT on F&O trades has created a lot of speculation in trading circles across the nation. Here’s a low-down of what we’ve gathered from various sources to simplify the hike in STT for you.
In the Finance Bill 2023, passed by the Lok Sabha on March 24, 2023, the Securities Transaction Tax (STT) on Futures & Options trades was increased by 25%. According to the Bill, the STT has been hiked from Rs. 1700 on a turnover of Rs. 1 crore to Rs. 2100 on the sale of Futures, and increased to Rs. 1250 from Rs. 1000 on a turnover of Rs. 1 crore on the sale of Options. For Options, the STT is levied on the Premium and not the Strike Price.
This hike will mostly impact the volumes churned by High-Frequency Traders (HFT) with regard to high-octane automated machines. It is estimated that 95% of India’s equity market volume is concentrated in derivatives and that the majority are HFTs. It will also increase the cost of operations for HFT foreign portfolio investors (FPIs) in India.
What is Securities Transaction Tax (STT)?
STT is a type of direct tax levied on transactions of securities like Equity, Futures and Options, and Mutual Funds. This was first introduced in 2004 and is levied only on transactions via the Stock Exchange. It was introduced to avoid tax evasion resulting from capital gains.
The government plans to collect more than Rs. 20000 crores in STT from the Stock markets by the end of March 2023. According to the Union Budget disclosures, the STT collected for the year 2022 was Rs. 23191 crores.