The STT is charged on the premium and not the strike price in case of options. The amendments to the Finance Bill 2023 were passed in the Lok Sabha on Friday.
The Centre has hiked the tax on futures and options (F&O) trading to Rs 2,100 from Rs 1,700 on a turnover of Rs 1 crore. With this, the Securities Transaction Tax (STT) levied on a turnover of Rs 1 crore has been hiked to Rs 12,500 versus an earlier levy of Rs 10,000. The STT is charged on the premium and not the strike price in case of options. The amendments to the Finance Bill 2023 were passed in the Lok Sabha on Friday.
While the government has hiked the STT on the sale of options by 23.52 per cent, the STT on the sale of futures contracts has been hiked by 25 per cent.
The move will affect high-frequency traders (HFT) as it will raise the cost of operations for HFT foreign portfolio investors (FPIs) in India. “Income from trading in derivatives is deemed to be capital gain for FPIs. Considering the fact that STT is not a deductible expense for computing capital gains income, this move shall increase the cost of operations of HFT foreign portfolio investors (FPIs) in India,” Suresh Swamy, Partner, PW & CO LLP said on the development.
Meanwhile, futures and options refer to financial derivatives which allow traders to speculate the price movements of an underlying asset without actually owning it. In case of futures, the buyer has an obligation to buy/sell assets. No such obligation, however, exists in options contract.
Trading in F&Os involves significant risks due to market volatility, fluctuations in currency exchange rates, and changes in interest rates. Those trading in F&Os can also face heavy losses if their positions move against their expectations.
