Budget 2024: Capital markets eyeing hike in STT on high-frequency traders

Union Budget 2024: The Securities Transaction Tax (STT) applies to every sale and purchase of equities listed on exchanges. The STT rate for selling options is 0.017%, while for futures, it is 0.01%

Ahead of the upcoming Union Budget 2024, reports indicate that representatives from India’s capital markets, on Thursday, requested Finance Minister Nirmala Sitharaman to increase the Securities Transaction Tax (STT) on high-frequency traders, according to a report in The Economic Times.

The STT applies to every sale and purchase of equities listed on exchanges. The STT rate for selling options is 0.017 per cent, while for futures, it is 0.01 per cent.

There was no discussion regarding proposal to impose an extra tax on futures and options (F&O) trades to discourage retail investors from trading, the report said.

Union Budget 2024: Possible higher taxes on F&O income

On Thursday, reports indicated that the forthcoming union budget might impose higher taxes on Futures and Options (F&O) income. This consideration arises from the substantial losses faced by hyperactive retail traders in the derivatives market. The report mentioned that the government is contemplating a proposal to treat F&O income similarly to income from lotteries or cryptocurrencies, thus imposing higher income tax on it in the Union Budget, the report said.

According to a report by Financial Express, the government is also considering reclassifying F&O transactions from ‘business income’ to ‘speculative income’ and potentially introducing a Tax Deducted at Source (TDS) on these transactions.

In an effort to limit retail participation in the derivatives market, the proposed change will result in F&O income receiving the same tax treatment as lotteries and cryptocurrencies.

Currently, income from F&O transactions is classified as business income and is taxed according to income slabs of 5 per cent, 20 per cent, and 30 per cent. This classification also permits gains from F&O to be offset against losses from other business activities.

TDS on F&O transactions

The implementation of TDS on F&O transactions would enable the government to better monitor investors in the market and discourage frequent trading, the report said.

The industry has also proposed the launch of the Jan Nivesh campaign to promote financial inclusion awareness.

In a tweet on X (formerly Twitter), Nilesh Shah, managing director (MD) of Kotak Mahindra Asset Management Company, said, “We requested honourable finance minister to launch a Jan Nivesh campaign to create financial inclusion for crores of Indians who are stuck in ponzi schemes and speculations.”