Why F&O trading will attract more tax from next month — explained

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Trading in futures and options (F&O) will become more expensive as of April 1, 2023 due to a Finance Bill amendment that will increase the Securities Transaction Tax (STT) on the sale of options and futures. The STT applicable on the sale of options has been increased by 23.52 percent to $2,100 from $1,700 on a turnover of $1 crore, according to the Finance Bill 2023 amendment that was submitted and approved by the Lok Sabha on Wednesday. Corresponding to this, the STT on sales of future contracts has increased by 25% to $1,250 from the previous $1,001 against a $1 crore in revenue. The new STT will go into effect on April 1, 2023, or the start of the new fiscal year, or let’s say FY24.

What the amendment to Finance Bill 2023 says
The STT on the sale of options has increased to $2,100 on a turnover of $1 crore from the previous $1,700, under the Finance Bill Amendment 2023. The STT on sales of future contracts has increased from 1,000 to 1,250 on 1 crore of revenue under the current tax system. The STT is based on the premium, not the strike price, when it comes to options.

Two strikes against F&O trading
Avinash Gorakshkar, Head of Research at Profitmart Securities, discussed the rise in STT on F&O trading “The action deals high frequency F&O traders a double blow. The recent NSE announcement to discontinue the “do not exercise” option will have a greater impact on F&O traders because auto settlement will no longer be accessible to them starting with the April expiration. Now, this increase in STT on F&O trading would further undermine the confidence of high frequency F&O traders and have a detrimental effect on the amount of F&O trades.”

According to Avinash Gorakshkar, the modification to the Finance Bill 2023 that raised the STT in the F&O segment should have been made at the same time as the Union Budget.

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