Government hikes securities transaction tax on futures, options contracts
New Delhi, March 24, 2023
The STT for futures has been hiked to 0.0125% from 0.01%, a source said
The Government is raising the Securities Transaction Tax (STT) on futures and options contracts in the stock market from April 1, 2023, a move that experts fear may push some traders to offshore markets.
Options contracts will now attract 0.021% STT from 0.017% earlier and futures will attract a levy of 0.0125%, up from 0.01% - as per changes to this effect brought into the Finance Bill cleared by the Lok Sabha on March 24, 2023.
“While the proposed increase in STT will shore up revenues of the Govt to a certain extent, the main idea behind this could be to discourage the excessive trade in F&O segment where a large number of retail traders end up losing money as per a recent SEBI study,” Deepak Jasani, head of retail research at HDFC Securities told The Hindu.
“An incidental effect of this could be shifting the F&O trades to SGX, Gift and other locations that do not attract such taxes for participants who have access to them,” he added.
The measure will have the intended effect of curbing excessive F&O trades only in flat or range-bound markets as when markets are volatile, traders will hope to offset the higher tax by higher payoffs, Mr. Jasani explained.
“In the past, such raising of taxes had a temporary minimal impact of F&O volumes. For more effective curbs on volumes, SEBI or stock exchanges may have to link the volumes and Open interest in the futures and options market with the disclosed income or wealth of the participants,” the HDFC Securities official said.