Kolkata: The derivatives market will face higher securities transaction tax from today, the first day of the new financial year. The higher rates for STT were announced by FM Nirmala Sitharaman to curb too much speculative activity in the country and despite the objection from both the trading community and the exchanges, the government refused to have a relook at it. In 2025 India was said to account for more than 80% of the global F&O market and this excessive level of speculation triggered concern in the finance ministry. Let’s have a look at what the higher STT entails.
The new rates
The rates of STT in futures and options are different. STT on futures was 0.02% earlier and it has been raised to 0.05%. The tax on options was 0.1% and it has been raised to 0.15%. While the figures appear to be small, the hikes are, in fact, huge. In Futures STT has gone up by 150%, while in options the rise is of 50%. Experts have pointed out that it means that breakeven will almost double for futures traders.
NSE authorities expressed despair at the STT hike by the FM. “A reduction in STT was expected in the Union Budget. Many people in the market were hoping that STT could be slashed for the cash market. On the contrary, the government raised STT for both futures and options,” the NSE management was quoted as saying in reports in February.
A look at the numbers
Here is an example from cleartax. Let’s consider a trader in futures with a contract value of Rs 20 lakh. Earlier he has to pay STT of Rs 400. This will jump to Rs 1,000 now. On a contract value of Rs 20 lakh, a 0.02% tax implies a tax of Rs 400. On the same contract, a STT of 0.05% will mean he/she has to pay Rs 1,000. This is a big jump of Rs 600 on what was only Rs 400 and it excludes brokerage, GST, or exchange charges. Therefore, the final margin of the trader will be significantly reduced.
What is STT and who pays it
Securities Transaction Tax (STT) is a direct tax which is imposed on the purchase or sale of listed securities such as shares, derivatives and equity mutual funds. Therefore, it impacts capital gains calculations. It is mandatory for transactions on stock exchanges. STT is also paid by equity mutual fund investors which is levied at a rate of 0.001% only when MF units are being redeemed. One does not have to pay STT on the purchase of equity MF units. For intraday trades, futures, and options, STT is typically paid only by the seller.
Analysts also earlier pointed out that FPI flows could experience an impact due to elevated STT. Brokerages also said that there could be an impact on volumes due to STT rise. STT is changing only for the F&O segment.
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