I’m an active F&O trader. What will be the impact of the hike in STT in F&O? Will the margin requirement go up because of the increase in tax rate? – Pradeep Devaraj

As per the amendments to the Finance Bill 2023, the Security Transaction Tax (STT) on the sale of options has been increased to ₹6,250 for a turnover of one crore i.e., 0.0625 per cent on option premium while selling, effective from April 2023. It is currently at ₹5,000 per crore i.e., 0.05 per cent.

Similarly, the STT on the sale of futures contracts has been hiked to ₹12,500 for a turnover of ₹1 crore i.e., 0.0125 per cent on selling price. Currently, it is ₹10,000 i.e., 0.01 per cent. Effectively, the STT has been increased by 25 per cent.

If your daily turnover in options is ₹1 lakh a day (typically, selling 5 lots of at-the-money Nifty 50 option that has one month left for expiry), your STT outflow for a year will go up to about ₹16,500 from ₹13,200. The absolute difference here may not be much. But if your turnover is higher, say at ₹10 lakh per day, it will be nearly ₹1.7 lakh as against ₹1.3 lakh.

Likewise, if your daily turnover in futures contracts is ₹10 lakh (say, you transact 1 lot of Nifty 50 futures everyday), the STT outflow per year can increase to ₹33,000 from approximately ₹26,500. But if your turnover is worth ₹1 crore, it will be ₹3.3 lakh against ₹2.65 lakh making a notable difference.

Overall, the more you trade, the higher STT you ought to pay. The most thing is to make sure not to target wafer thin profit margins per trade. If you’re already doing so, this increase will have a significant impact on your performance.

There will not be any increase in margin obligation as its calculations are linked to contract value and not the STT.

Send your queries to derivatives@thehindu.co.in

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