Govt to hike securities transaction tax on F&O contracts

The government proposed hiking the securities transaction tax on Futures & Options (F&O) contracts, a move that will increase the trading costs in the derivatives segment as well as help in curbing excessive trades. 

In the Finance Bill 2023, passed by the Lok Sabha on Friday, the Securities Transaction Tax (STT) on options is proposed to be increased to 0.0625 per cent from 0.05 per cent and on futures contracts to 0.0125 from 0.01 per cent. 

Analysts opined that higher STT will shore up the government's revenues to some extent and also discourage excessive trading since a large number of retail traders are losing money in the segment. 

After the Lok Sabha cleared the Finance Bill, which has 64 official amendments, the finance ministry issued a statement saying that there was a typographical error in the amendments with respect to the change in STT on option trading.

The error, the finance ministry said, will be rectified in accordance with the extent procedure of the Government of India. As per the amendments, the STT on options has been increased from 0.017 per cent to 0.021 per cent.

In case of STT, the rate is proposed to be changed from 0.05 per cent to 0.0625 per cent. There was a typographical error which is being corrected, the ministry said. Sunil Gidwani, Partner at Nangia Andersen LLP, the hike in STT would impact the traders in big way.

STT rates on the sale of options increased from 0.05 per cent to 0.062 per cent and on the sale of futures increased from 0.010 per cent to 0.0125 per cent levying additional burden for the traders, he said.