F&O trading: Securities Transaction Tax (STT) hiked by govt

TL;DR

• STT on options hiked to 0.0625% vs 0.05% earlier
• STT on futures hiked to 0.0125% vs 0.01% earlier
• STT on the sale of options will now be ₹6,250 on a turnover of ₹1 crore against an earlier levy of ₹5,000. This translates into a jump of 25%.
• STT on sale of futures contracts will now be ₹1,250 on turnover of ₹1 crore against the earlier levy of ₹1,000. This translates into a jump of 25%

Trading in futures and options will now attract higher taxes from April 2023. The government has hiked the Securities and Transactions tax (STT) by 25% on sale of options and 25% on sale of futures contracts. This was part of the Finance Bill that was passed by the Parliament on 24 March, 2023.

In percentage terms, STT on sale of futures will now be levied at 0.0125%. In case of options, STT has been hiked to 0.0625%.

What is Securities Transaction Tax (STT)

Securities transaction tax (STT) is a tax levied at the time of purchase and sale of securities listed on stock exchanges in India. It is collected by the central government on transactions involving equity, derivatives, mutual fund units and unlisted shares sold under offer for sale (OFS) to the public included in initial public offering.

How is STT calculated on Futures and Options

Futures

For futures, the current STT rate applicable for equity and index trades is 0.01% on sell side turnover.

E.g: If a trader buys 10 lots of NIFTY50 futures at ₹17,000 and sells it at ₹17,010, currently they would pay an STT charge of 0.01%.

New

STT = Tax rate X Selling price X Quantity X lot size

=0.0125% X 17,010 X 10  X 50  

=₹1,063 would be levied on the transaction

Current

STT= 0.01%* 17,010 X 10  X 50

=₹850 would be levied on the transaction

Options

For options, the current STT rate applicable for equity and index trades is 0.05% on sell side turnover.

E.g: A trader buys NIFTY50’s 1 lot of 17,000 CE at a premium of ₹100 and sells it at ₹100, a STT charge of 0.05% will be levied.

New

STT = Tax rate X Selling price X Quantity X lot size

= 0.0625%* 100 X 1 X 50 

= ₹3.13 would be levied on the transaction

Current

STT= 0.05%* 100 X 1 X 50 

= ₹2.5 would be levied on the transaction

Status quo for STT on ITM Options

But, the STT rates for in-the-money (ITM) exercised options has been left untouched at 0.125%. So, if you carry your option till expiry and your in-the-money option gets exercised, then you will be charged 0.125% STT of the intrinsic value. 

Suppose Nifty50 is at 17,000 and trader buys NIFTY50’s 1 lot of 17,000 CE at a premium of ₹100. If the index expires at 17,100, in this case the STT will be charged on the intrinsic value of ₹100. 

STT = Tax rate X Intrinsic value X Quantity X lot size

=0.125% x 100 x 1 x 50

=₹6.2