SECURITIES TRANSACTION TAX - ECONOMY
News: Government
hikes securities transaction tax on futures, options contracts
What's in the news?
● The
Government has raised the Securities Transaction Tax (STT) on futures and
options contracts in the stock market by 25% from April 1, 2023, a move that
may push some traders to offshore markets and dent trading volumes on the
bourses.
Security Transaction Tax:
● Tax
levied on value of securities transacted through recognized stock exchanges is called Securities Transaction Tax
● This
direct tax is levied and collected by the Central Government
● The
tax is levied on products such as stocks, shares, bonds, debentures,
derivatives, equity oriented mutual funds, etc.
● STT
is not imposed on off-market
transactions.
● Options
contracts will now attract 0.0625% STT, from 0.05% earlier.
● Futures
contracts will attract a levy of 0.0125%, up from 0.01%.
● STT
applicable on redemption of mutual funds or ETFs is 0.025%.
● STT
charged on sale of MFs or ETFs is 0.001% and is levied only on the seller.
Impacts of the increase in STT:
● The
increase in STT will especially impact high frequency traders who work with
thinner spreads in the futures and options segment.
● The
foreign portfolio investors or FPIs may be affected as they don’t get a
deduction for STT while computing their capital gains on derivatives.