How 'do not exercise' feature will help options traders

The differential tax treatment discouraged investors from actively participating

The “do not exercise” facility given by stock exchanges for certain equity options is expected to iron out liquidity woes and result in savings for traders. Earlier, all in-the-money options contracts used to get “exercised” on the expiry day, thereby attracting securities transaction tax (STT) of 0.125 per cent, instead of the normal rate of 0.05 per cent. Moreover, the higher STT used to get imposed on notional value of contracts and not the premium amount. The theoretical reason for higher tax incidence was that expiring of in-the-money options was akin to buying or selling underlying security and hence, attracted