Finance Minister Arun Jaitley has increased STT on sale of stock options from 0.017% to 0.05%. He also proposed a 10% additional dividend distribution tax on individuals, HIndu Undivided Family's (HUFs) and firms receiving dividend in excess of Rs 10 lakh per annum..
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Meanwhile, BSE Brokers Forum welcomed the increase in FDI limits in stock exchanges from 5% to 15%, saying the move would push the financial services sector to a higher growth trajectory along with financial inclusion.
"The STT increase in options is a substantial one. It will significantly impact the traders and limit the leeway to trade in options. Since it contributes significantly to the equity trading volume it will weigh in on the margins," said IIFL president for retail broking Prasanth Prabhakaran.
Emkay Global Financial Services Managing Director Krishna Kumar Karwa said, "Increase of STT on options and dividend tax on above Rs 10 lakh receipts is disappointing."
Karwa, however, said from a capital markets perspective there is a huge sense of relief that status quo was maintained on long-term capital gains tax.
Karvy Private Wealth's Abhijit Bhave said the hike in STT on options by nearly three times is a "negative news for short-term option traders".
"This may decrease volume and liquidity in options segment across strikes and expiry, while it would also reduce arbitrage opportunities in options segment and lead to less participation from proprietary traders," he said.
Motilal Oswal Financial Services chairman Motilal Oswal said the 10% tax on dividends in excess of Rs 10 lakh in the hands of the investor was a "negative" move that would discourage dividend distribution.
With regard to STT, Oswal said the significant hike would help discourage speculation in the options market, adding that an "increase in excise duties and various taxes has been another negative in the Budget."
As per Bonanza Portfolio, "the Budget failed to meet expectations for investors as it raised STT on options and at the same time increased dividend distribution tax on dividends over Rs 10 lakh which is not taken well by the markets."
"The increase in dividend distribution tax and STT took the equity markets by surprise," HSBC, global financial services provider, said.
"But raising the STT on options comes as a surprise. This would surely increase the impact cost for the average trader," Shrey Jain, founder of SASOnline.in, said.