Amendment to the Finance Bill regarding the Securities and Transaction Tax (STT) on Options has created a confusion in India’s stock markets, brokers told businessline.
The STT on the sale of Options has been levied at ₹5,000 on a turnover of ₹1 crore for the past four years.
Effectively, the Finance Bill has reduced the STT on Options, which may be an unlikely intention and hence a blunder or a typo, brokers told businessline.
As the amendment to the Finance Bill has been passed in the Lok Sabha, the government has to pass an ordinance to bring the intended changes to the tax, legal experts said.
“I have been paying an STT of ₹5,000 on the turnover of ₹1 crore for the past four years. So I’m confused if the Bill has actually reduced the STT on Options?” said a major Mumbai-based broker.
According to the documents of Finance Bill 2023, STT on the sale of Options has been hiked to ₹2,100 on a turnover of ₹1 crore against an earlier applicable levy of ₹1,700.
Finance Bill 2023
Futures and Options (F&O) trading in India’s stock and commodity market will now attract higher taxes from April 2023. The government has hiked the securities transaction tax (STT) by 23.52 per cent on the sale of Options and 25 per cent on the sale of futures contracts.
The move will primarily impact the volumes churn by high-frequency traders (HFT) i.e. the high-octane automated machines. More than 95 per cent of India’s equity market volume is concentrated in derivatives, and out of this, majority of the churn is driven by HFT machines.
Current Finance Bill amendments
According to the amendments to the Finance Bill 2023, STT on the sale of Options has been hiked to ₹2,100 on a turnover of ₹1 crore against an earlier applicable levy of ₹1,700. On the sale of futures contracts, the STT has been hiked to ₹1,250 on ₹1 crore of turnover against the earlier levy of ₹1,000. On the Options side, the STT is charged on premium and not the strike price.
Usually, such key proposals are announced during the presentation of the Budget, but this time, as an exception, the government chose to bring this hike as an amendment to the Finance Bill.
The government estimated to collect more than ₹20,000 crore in STT from the stock markets by the end of March 2023, which is 60 per cent higher than the previous year. But the hike in taxes now could give the government a windfall.
According to this year’s Budget documents, the actual collections from STT were at ₹16,927 crore in 2020-21. In India, STT was introduced in India 2004 for transactions in different types of securities. All stock market transactions that involve equity or equity derivatives like F&O are liable to be taxed under STT.