The union finance ministry on Friday clarified that the Securities Transaction Tax (STT) on selling options has been increased to 0.062 percent from 0.05 percent.

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As per amendments to the Finance Bill 2023, the STT on the sale of options was hiked to Rs 2,100 on a turnover of Rs 1 crore against an earlier applicable rate of Rs 1,700,

On the sale of futures contracts, the STT has increased to Rs 1,250 on Rs 1 crore of turnover against the earlier rate of Rs 1,000. On the options side, the STT is charged on the premium and not the strike price.

"It appears that there is an inadvertent mistake as the STT rate in respect of the sale of options in securities is not 0.017% as of date. The STT rate was increased from 0.017 percent to 0.05 percent by the Finance Act, of 2016. Thus, a higher rate of 0.05 percent i.e STT of Rs. 5,000 on trade value of Rs. 1 crore has been in force since the commencement of Finance Act, 2016," former ICAI President Ved Jain told CNBC-TV18. " The rate intended was 0.0625 as against present rate of 0.05. The new rate would have been Rs 6,250 per 1 crore," he said.

Rajesh Baheti of Crosseas Capital Services highlighted the fact that STT on options trading was hiked in 2017 from 0.017 to 0.05. "So technically, as it stands, you might argue that STT has been reduced by 60 percent in options trading. Somebody has made this monumental error. So the way I see it, this entire discussion for the time being is meaningless. Because STT on options already stands at 0.05, which is Rs 5,000 and not Rs 1,700," he told CNBC-TV18.

On the sale of futures contracts, the same has been raised to Rs 1,250 on a turnover of Rs 1 crore, as against Rs 1,000 earlier. For options, STT is charged on a premium and not the strike price.

"If you look at the tax point of view, the increase is substantial," Siddharth Bhamre, head of research at Religare Broking told CNBC-TV18. "This would increase cost of trading for a trader. But then if you look at the overall how F&O market has panned out over a period of time, how volumes have substantially increased despite, exchange measures and regulators measures, that you increase a lot size, and hence you would restrict retail participants," he said. However, Bhamre does not expect a significant dip in volumes because of these measures.

With the STT on futures hiked by 25 percent, Nikhil Kamath of Zerodha said that if a retail trader buys and sells 10 lots of Nifty futures, he will have to pay Rs 855 in STT or 1.7 points on each Nifty lot. "If he trades 10 times a day, he has to capture 17 points of a Nifty move everyday on STT alone," Kamath wrote on social media platform Twitter.

The Zerodha co-founder further said that all of this is excluding exchange rates, stamp duty, GST, brokerage, and SEBI charges. "Adding all of this, he has to capture 30 points between the Nifty volatility daily to break even for 10 trades in a day," he said. "We then wonder why many traders find it hard to be profitable."

First Published:Mar 24, 2023 1:52 PM IST