Sale of option contracts will attract a higher rate of securities transaction tax (STT) from next month, leading bourse NSE has said.
STT is applicable on all sell transactions for both futures and option contracts in the derivative segment.
"We would like to inform that as per the Finance Act, 2016...Which received the Presidential assent on May 14, 2016, rate of levy of Securities Transaction Tax (STT) on sale of option has been revised from current rate of 0.017 per cent to 0.05 per cent with effect from 1st day of June, 2016," NSE said in recent circular.
Accordingly, a seller of the 'options in securities' would have to pay STT at the rate of 0.05 per cent.
As per securities regulations, options on securities has been defined as "option in securities" and refers to a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future.
The taxes on other securities transaction has remained unchanged.
STT is levied on sale of an option in securities, sale of an option in securities, where option is exercised and sale of a futures in securities.
Options contract is a type of derivative which gives its buyer the right (but not the obligation) to sell/buy the underlying asset at a predetermined price within or at end of a specified period.
The buyer of the option purchases the right from the seller for a consideration which is called the premium. The seller of an option is obligated to settle the option as per the terms of the contract when the buyer exercises his right.
The underlying asset could include securities, an index of prices of securities, among others.
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