Up to 25 percent increase in STT for every one crore turnover in F&O

9 out of every 10 individual derivatives traders end up losing capital: SEBI

Mumbai/New Delhi: Futures and Options (F&O) trading, which is a kind of gambling in the stock markets, is causing most of the retail traders to end up losing huge losses. A new hike in the Securities Transaction Tax (STT) has been proposed as a way of tax collection. Finance Minister Nirmala Sitharaman has amended the Finance Bill 2023 to increase the tax burden of Securities Transaction Tax (STT) on traders trading in Futures and Options (F&O). According to this amendment, the STT has been increased by 24 percent from Rs.5000 to Rs.6200 on every turnover of Rs.1 crore on the sale of options. While the STT on sale of futures contracts, which is currently Rs.1000 per turnover of Rs.1 crore, has been increased by 25 per cent to Rs.1250.

According to this amendment, traders in the futures segment will have to pay Rs.1250 STT for every turnover of Rs.1 crore instead of Rs.1000. This amendment will be effective from the new financial year 2023-24. In percentage terms, STT on sale of futures has been increased from 0.01 percent to 0.0125 percent and on options from 0.05 percent to 0.062 percent.

However, after this revision, broking circles pointed out that the base rate in the options was already 0.05 percent, Finance Minister Nirmala Sitharaman clarified the matter late, saying that due to a typographical error, the base rate was written as 0.017 percent and this rate was 0. 017 percent to 0.021 percent has been written wrongly, the error has been corrected. So consider that now the options have increased from 0.05 percent to 0.062 percent.

Nikhil Kamath, co-founder of Zerodha, says about the impact after the increase in STT in futures, if an intra-day retail trader buys and sells 10 lots of Nifty futures, he will have to pay 1.7 points i.e. Rs.855 STT per lot of Nifty. . If a trader trades 10 times a day, he has to earn 17 points for STT daily on this fluctuation of Nifty. This is only for STT. While the exchange charges, stamp duty, GST, brokerage and SEBI charges will be different.

If all the charges are considered then the volatility for 10 trades of daily Nifty would be 30 points. Kamath further said about this that if anyone gets a profit after all these charges in these deals, he will have to pay tax at the maximum income tax rate. So in a way it will become difficult for traders to get profit.

Notably, Securities Transaction Tax is an indirect tax levied by the central government on the purchase and sale of securities such as equity, futures and options. By introducing the Securities Transaction Tax Act in the budget of the year 2004, this STT was imposed only on trading through the stock market. 0.025 per cent is levied on sale in intra-day stocks trades, while 0.1 per cent STT is levied on both buy and sell for delivery trades.

These proposed changes in the Finance Bill have been made only for the derivatives segment. It may be noted here that Futures and Options (F&O) have become more popular among retail traders. A recent study by SEBI found that 9 out of every 10 individual derivatives traders end up losing their capital. Meanwhile, the number of F&O traders has also increased by more than 500 percent in the last three years. A survey of top 10 brokers found that 89 percent of individual derivatives traders lost capital with an average loss of Rs.1.1 lakh.

Along with the hike in STT, F&O options traders were dealt another blow yesterday as the National Stock Exchange (NSE) decided to withdraw the Do Not Exercise (DNE) facility for those trading in the options segment from March 30. The DNE facility allows option traders to auto square their positions. Allows to turn off. That is, if the trader does not take delivery, the position is automatically squared off and the trader has to pay the outstanding amount only.

18,729 crore STT revenue till October

The government had originally estimated the STT revenue at Rs 20,000 crore for the financial year 2023, but revised the estimate to Rs 25,000 crore. Against this, the government has received an STT income of Rs.18,729 crore till October 2022. The daily turnover in derivatives trading in Indian stock markets has been Rs 150.67 lakh crore in the current financial year 2023, which was Rs 68.35 lakh crore on a daily average last year. Thus, the daily average trading turnover in the derivatives segment has increased by 120 percent. Considering this huge turnover, the increase in STT by the government is expected to increase the revenue of the government.

How much increase in STT?

According to the new amendment, STT has been increased by 24 percent from Rs.5000 to Rs.6200 on every turnover of Rs.1 crore on sale of options. While the STT on sale of futures contracts, which is currently Rs.1000 per turnover of Rs.1 crore, has been increased by 25 per cent to Rs.1250.