Option traders were left confused after the amendment was moved in the Lok Sabha today as options were already being taxed at the rate of 0.05%. Finance ministry officials said it was a typographical mistake and the government will make further amendments in the bill to correct the error.
Under the new rules, option traders will have to pay Rs 6,200 for every Rs 1 crore worth of turnover as against Rs 5,000 that is being paid currently. This translates into a hike of around 25%.
In the meantime, the finance ministry has also hiked STT on sale of futures from 0.01% to 0.0125%. This translates into a 25% hike. In other words, traders will now have to pay STT of Rs 1,250 on Rs 1 crore of turnover while selling futures.
Chandan Taparia of Motilal Oswal said the move doesn’t effect option buyers but high frequency traders and those selling options on a regular basis will get affected the most. Trading volumes may also decline in the short term.
Explaining the impact of the STT hike in futures, Zerodha co-founder Nikhil Kamath said if an intraday retail trader buys and sells 10 lots of Nifty futures, he has to pay Rs 855 in STT or 1.7 points on each Nifty lot, if he trades 10 times a day, he has to capture 17 points of a Nifty move every day on STT alone.
“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 said by chance, if someone is profitable after all this, they pay the maximum income tax rate. “We then wonder why many traders find it hard to be profitable. A robust and liquid stock market is cardinal to our economy; the small guy helping make this happen should also be helped,” he said.
Narinder Wadhwa, President, CPAI said high cost of transactions on equity and commodity trade may lead to drop in volume and liquidity. “Presently, we have very high transaction costs as compared to other foreign jurisdictions by way of CTT, GST, stamp duty, exchange charges, besides levy of applicable capital gain tax/income tax,” he said.
The PHD Chamber of Commerce said the STT hike is an untimely step, particularly in a time when the markets are experiencing turmoil.
It will have some impact on market sentiments and trading volumes, said Saket Dalmia, President, PHDCCI.
In the meantime, the National Stock Exchange (NSE) has rolled back the 6% increase in transaction charges on equity cash and derivatives segment, with effect from April 1. In January 2021, the charges were earlier increased by 6% partly, to augment the investor protection fund trust.
The charges were earlier increased by 6%, with effect from January 1, 2021, partly to augment NSE Investor Protection Fund Trust (NSE IPFT) corpus in view of certain market exigencies due to broker defaults at that point in time.
NSE has also decided to recalibrate the contribution to NSE IPFT from Rs 0.01 per crore to Rs 10 per crore in Cash Equities Market Segment & Equity Futures and Rs 0.01 per crore to Rs 50 per crore in Equity Options.
This above reduction in transaction charges partially offset by the recalibration of contribution to NSE IPFT will lead to effective reduction impact on overall transaction charges by around 4%, NSE said.