Small Traders Fear The Worst As Government Hikes STT On F&O Trading

Starting from April 1, 2023, the cost of Future & Option (F&O) trading will increase after the Lok Sabha passed a new amendment on Wednesday.

What Happened? According to the amendment, the Security Transaction Tax (STT) on selling options will increase by 23.52% to ₹2,100 from ₹1,700 for a turnover of ₹1 crore.

Similarly, the STT on selling futures contracts will increase by 25% to ₹1,250 from ₹1,000 for a turnover of ₹1 crore. These changes will come into effect on April 1, 2023, which is the beginning of the 2024 financial year.

The government intends to receive over ₹20,000 crore from STT in the stock markets by March 2023, which is a 60% increase from the previous year. With the increased taxes, the government might get even more money. In the fiscal year 2020-21, the actual STT collections were ₹16,927 crore, according to the budget documents for this year.

However, traders were also left confused after the government raised the STT on the sale of options from 0.017% to 0.021%. This is because the current STT rate for options is already 0.05%, which is higher. The Finance Ministry said it would issue a clarification note and check to make any necessary changes.

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Smaller traders could suffer: Nikhil Kamath, the co-founder of Zerodha, took to Twitter to explain how the STT hike will affect futures trading. He said that if a retail trader buys and sells 10 lots of Nifty futures in a day, they will have to pay ₹855 in STT or 1.7 points for each Nifty lot. If the trader does this 10 times a day, they will have to gain 17 points on the Nifty just to cover the STT cost.

“This is outside of exchange charges, stamp duty, GST, brokerage, and Sebi charges. Adding all this, he has to capture 30 points between Nifty volatility daily to break even (10 trds/day),” he tweeted.

Kamath mentioned that if traders manage to make a profit after paying the increased STT, they will have to pay the highest income tax rate. This can make it challenging for traders to be profitable. He emphasized that a thriving stock market is crucial to the economy, and the small traders who contribute to it are entitled to some support from the government.

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Posted In: F&O tradingFutures and Options tradingNikhil KamathZerodha