Finance ministry issues clarification over STT hike on selling options

The finance ministry clarified on Friday that the securities transaction tax (STT) on selling options has been raised to 0.062 per cent from 0.05 per cent and not from 0.017 per cent to 0.021 per cent as stated in the latest amendment to Finance Bill 2023 that was passed by the Lok Sabha today, the Economic Times reported.

The options traders were left confused after the amendment was moved in the Lok Sabha today as options were already being taxed at the rate of 0.05 per cent. 

According to the report, it was a typographical mistake quoting sources from the Finance Ministry.

So under the new amendment, option traders will have to pay Rs 6,200 for every Rs 1 crore worth of turnover. Uptill now they were paying Rs 5,000, thus making it a hike of around 24 per cent.

The finance ministry has also increased STT on the sale of futures by 25 per cent from 0.01 per cent to 0.0125 per cent. The traders will now have to pay STT of Rs 1,250 on Rs 1 crore of turnover while selling futures.

Quoting Chandan Taparia of Motilal Oswal, the ET report said that the move doesn't affect option buyers but high-frequency traders and those selling options on a regular basis will be the most impacted. Taparia further added that the trading volumes may also decline in the short term.  

Zerodha co-founder Nikhil Kamath also explained, the impact of the STT hike in futures saying that if an intraday retail trader purchases and sells 10 lots of Nifty futures, he has 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 every day on STT alone.

"This is outside of exchange charges, stamp duty, GST, brokerage, and Sebi charges. Adding all this, he has to capture 30 points between Nifty volatility daily to break even (10 trds/day)," he said in a  tweet.

Kamath further explained that by chance, if someone is profitable after all this, they pay the maximum income tax rate. "We then wonder why many traders find it hard to be profitable. A robust and liquid stock market is cardinal to our economy; the small guy helping make this happen should also be helped," he said.