Nirmala Sitharaman, the Union Finance Minister, presented the Union Budget for 2024 to Parliament at 11 a.m. today. The budget includes a complete roadmap for the future year. With the aim of broadening and deepening the tax base and anti-avoidance, the FM has proposed hikes for Security Transaction Tax (STT) for futures and options.
The Securities Transaction Tax (STT) is a type of financial transaction tax levied in India on the acquisition or sale of securities listed on Indian stock exchanges. This tax is levied irrespective of profit or loss incurred.
Futures and options are types of financial derivatives. There is a significant difference between the 2. Futures impose a duty on an investor by compelling him or her to follow up on a deal by a predetermined deadline, an options contract grants an individual the right to do so. There are different types of futures and options. A futures contract to buy or sell an underlying security must be followed up on a predetermined date at a contractual price. On the other hand, an options contract gives a buyer the ability to do the same if he or she gains from a deal.
The FM in the union budget has proposed to increase the STT rates on the transactions of derivatives such as futures and options. It has been intended to increase the rates of STT on options from 0.0625 percent to 0.1% of the option premium, which is a significant increase that would definitely help the government earn more revenue. The STT on the sale of future securities has also increased from 0.0125 percent to 0.02 percent of the price at which such futures are traded.
Thus, by increasing the STT for the trading of futures and options, the revenue generated by the government will also increase accordingly. But this imposes a burden on the trader to pay a higher tax on the trading of futures and options. We could say that there is a negative impact on the trader.
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