On a turnover of Rs 1 crore, the Centre increased the tax on futures and options (F&O) trading from Rs 1,700 to Rs 2,100. As a result, the Securities Transaction Tax (STT), which was previously levied on transactions totalling Rs 1 crore, has increased from Rs 10,000 to Rs 12,500. In the case of options, the STT is assessed on the premium rather than the strike price. On Friday, the Lok Sabha approved the changes to the Finance Bill 2023.
The STT on the sale of futures contracts has increased by 25% while the STT on the sale of options has increased by 23.52 per cent.
What are these FnO segments of the stock market?
Financial derivatives such as futures and options let traders speculate on the price alterations of an underlying asset without really owning it. In the case of futures, the buyer is required to purchase or sell assets. However, an options contract does not contain such a requirement.
Due to market volatility, fluctuating currency exchange rates, and shifting interest rates, trading F&Os carries a large amount of risk. F&O traders may sustain significant losses if their positions change contrary to their expectations.
High-frequency traders (HFT) will be impacted by the decision since it will increase the cost of operations for HFT foreign portfolio investors (FPIs) in India. “For FPIs, income from trading in derivatives is regarded as capital gain. This action will make operating in India for HFT foreign portfolio investors (FPIa ) more expensive However, it won’t have an impact on market sentiment or volume. A person who generates a revenue of Rs 1 crore through options premiums is already operating with a margin of almost Rs 5 crore.
It has been hit twice. First, NSE eliminated the no-exercise choice. The STT has now risen. it is a step backwards when markets are in turmoil there will more burden on traders as it already count a lot of money while they trade.