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Informist, Tuesday, Jul 23, 2024

--BUDGET: STT on options raised to 0.1%

--BUDGET: STT on futures raised to 0.02%

--Revenue secy: Tax change on STT effective from Oct 1

MUMBAI – Presenting the full Budget for 2024-25 (Apr-Mar), Finance Minister Nirmala Sitharaman today proposed an increase in the securities transaction tax to 0.1% of the option premium on sale of options and to 0.02% of the price of futures on sale of futures in securities. Currently, the securities transaction tax on sale of an option is 0.0625% and on sale of futures is 0.0125%. The hike in securities transaction tax will come into effect from Oct 1.

In both selling of options and futures, tax is payable by the seller. It raises the transaction costs by 60% each for traders and investors selling the futures and options.

The government has kept unchanged the securities transaction tax on sale of options in securities, where the option is exercised, at 0.125% of the intrinsic value of the options. This tax on exercise of options is payable by the buyer.

The government's revenue collection from securities transaction tax is expected to increase as a result of the higher tax. The tax hike "may be a near term sentiment spoiler," according to Lakshmi Iyer, chief executive officer of investment and strategy, Kotak Alternate Asset Managers.

"At a time when the equity indices are at an all-time high, the government has tried to take a share out of the growth and the profits earned by the investors from the capital market" through "a double whammy kind of taxation by increasing both the STT (securities transaction tax) rates on derivatives and an increase in" short term and long term capital gains tax," Nilesh Sharma, president and executive director, SAMCO Securities, said.

The Budget also proposed to hike the short-term capital gains on certain financial assets to 20% from 10% and a uniform 12.5% on long-term gains on all financial and non-financial assets.

The hike in securities transaction tax will be a burden for investors and will certainly impact the trading volume in the equity futures, Jitendra Motwani, partner at Economic Laws Practice, said. Market participants will factor in the additional taxation costs and fine-tune their trading and investment strategies, Kotak Securities' Managing Director Shripal Shah told Informist.

Vikram Kasat, head of advisory at brokerage Prabhudas Lilladher, said that stock market's worst fears got realised with the finance minister hiking securities transaction "as they perceive that space (equity futures and options trading) as overheated and speculative." The decline in trading volume in equity derivatives expected from the tax hikes will likely be a dampener for liquidity in the cash market as well, according to some market participants.  End

Reported by Rajesh Gajra

Edited by Ashish Shirke

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