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What is STT? FM Sitharaman proposes hikes of up to 150% on F&O trading in Union Budget
“STT on options premium and exercise of options are both proposed to be raised to 0.15 per cent,” the Finance Minister said.
The Securities Transaction Tax on futures contracts would be raised to 0.05 per cent from 0.02 per cent, Union Finance Minister Nirmala Sitharaman said in her Budget speech.
“STT on options premium and exercise of options are both proposed to be raised to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent respectively,” the Finance Minister said on Sunday.
The proposed increase in the Securities Transaction Tax (STT) on derivatives, aimed at checking excessive speculation in the futures and options (F&O) segment, is expected to increase transaction costs for active and short-term trading strategies, PTI news agency reported.
What is the Securities Transaction Tax (STT)
The STT is a tax charged on the value of securities traded on recognised stock exchanges in India. The government tax is applied to market transactions, and therefore directly raises the cost for traders, particularly for those who trade frequently and in large volumes.
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The tax is applicable to shares, equity mutual funds, futures and options, and is collected at the time of the transaction itself, irrespective of whether the investor makes a profit or a loss.
An STT Options hike would mean that the government has increased the Securities Transaction Tax on Options trades, which in turn raises the cost of buying or selling options in the stock market. The hike thus impacts Options traders, specifically frequent and short-term traders, by reducing their net profits per trade.
Following the hike in the securities transaction tax on derivatives in the Union Budget, the markets tanked, with Nifty 50 sliding down 1.94 per cent at 24,832.1, and the BSE Sensex losing 1.8 per cent to 80,834.11 as of 12:35 pm.
While this increase may help curb short-term speculation and increase tax revenue, it will also reduce net profits for active futures traders.
TCS slashed on foreign spending, education
The Finance Minister has proposed a major reduction in tax collection at source (TCS) on overseas spending, including on the TCS on the sale of overseas tour programme packages to 2 per cent. At present, the TCS rates stand at 5 per cent and 20 per cent.
The TCS rate under the Liberalised Remittance Scheme (LRS) has also been reduced for those pursuing education and for those seeking medical treatment. "I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalized Remittance Scheme, popularly known as LRS," Sitharaman said.
Further, the Finance Minister said that any interest by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax.
