Finance Bill 2023: Tax on futures and options trading to increase by 25 per cent
Realising mistake, finance ministry later in the day admitted that there was a typographical error and clarified that STT on selling options has been raised to 0.062% from 0.05%.
MUMBAI: Government’s unexpected decision to hike Securities Transaction Tax (STT) by 25% on Futures and Options trading not only shocked the traders and brokers but also created confusion in the market.
The Finance Bill 2023 passed in Lok Sabha on Friday stated that the STT on selling options has been raised from 0.017% to 0.021%. But, it left traders confused as they were already being taxed at 0.05% since 2016 and the new tax rate of 0.021% actually meant reduction in STT.
Realising mistake, finance ministry later in the day admitted that there was a typographical error and clarified that STT on selling options has been raised to 0.062% from 0.05%. This means option traders will now have to pay Rs 6,200 for every Rs 1 crore turnover compared to Rs 5,000 being paid currently, reflecting a rise of 25%.
“It appears that the amendment is not intentional but an inadvertent mistake and the same will be revisited. The rate intended was 0.0625 as against present rate of 0.05. The new rate would have been Rs 6,250 per Rs 1 crore,” clarified the ministry It has also raised STT on sale of futures from 0.01% to 0.0125%. This means traders will have to pay Rs 1,250 on Rs 1 crore of turnover against the earlier rate of `1,000 on the sale of futures contracts.
“STT hike will impact intraday options writers more owing to the increased cost. The hike will impact the volumes churned by high-frequency traders (HFT),” said Arvinder Singh Nanda, Senior Vice President, Master Capital Services. “Over 90% of the volume in the Indian market originates from Scalpers, arbitrage houses and HFT firms. Rise in STT on F&O trading is going to further dent morale of high-frequency F&O traders that will, in turn, have a negative impact on F&O trade volume, thereby increasing the spread for retail investors,” he said.
Higher taxes on F&O trading
- 25%: Increase in Securities Transaction Tax on sale of options
- 0.062%: New STT on sale of options from April 1
- Rs 6,200: Tax payable for every Rs 1 crore turnover from April 1
- 0.05%: Current STT on sale of options
- Rs 5,000: Tax payable currently for every Rs 1 crore turnover