In the Budget 2024, significant changes have been proposed to the Securities Transaction Tax (STT) rates under the Finance (No.2) Act, 2004. Effective October 1, 2024, the STT on the sale of options in securities will increase from 0.0625% to 0.1% of the option premium. Similarly, the STT on the sale of futures in securities will rise from 0.0125% to 0.02% of the trade price. This adjustment reflects the substantial growth in the derivatives market and aims to align tax rates with current trading volumes. These amendments will impact traders and investors dealing in options and futures, increasing the cost of transactions in these markets.
Budget 2024: Revision of rates of securities transaction tax by amendment to the Finance (No.2) Act, 2004
Levy of Securities Transaction Tax (hereafter referred to as STT) on transaction in specified securities was introduced vide Finance (No.2) Act, 2004. As per the provisions of the STT, recognized stock exchanges, mutual funds (having equity oriented scheme), insurance company or lead merchant banker appointed by the company in respect of an initial public offer or an initial offer are liable to collect the tax on specified securities and pay the same to the credit of the Central Government within seven days from the end of the month in which STT is collected. After its introduction in 2004, the rates of STT have been revised from time to time.
2. Presently, the rate of levy of STT on sale of an option in securities is 0.0625 per cent of the option premium, while the rate of levy of STT on sale of a future in securities is 0.0125 per cent of the price at which such “futures” are traded. The rate of levy of STT on delivery trades in equity shares is 0.1 per cent on both purchase and sale transactions, while in the case of sale of an option in securities where option is exercised, the rate of levy is 0.125% of the intrinsic price (i.e the difference between the settlement price and the strike price) and is payable by the purchaser.
3. There has been an exponential growth of derivative (future and option) markets in recent times and trading in such derivatives accounts for a large proportion of trading in stock exchanges. In view of this exponential growth of the derivative markets, it is proposed to increase the said rates of securities transaction tax on sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium, and on sale of a futures in securities from 0.0125 per cent to 0.02 per cent of the price at which such “futures” are traded.
4. This amendment is proposed to be made effective from the 1st day of October, 2024.
Clause 155 of the Bill seeks to amend section 98 in Chapter VII of the Finance (No.2) Act, 2004 relating to charge of securities transaction tax.
The said section, inter alia, provides that the securities transaction tax on sale of an option in securities is 0.0625 per cent. of the option premium. The section also provides that the securities transaction tax on sale of a futures in securities is 0.0125 per cent. of the price at which “futures” are traded.
It is proposed to amend entries (a) and (c) in column (3), in serial number (4) of the Table to the said section to increase the said rates of securities transaction tax on sale of an option in securities to 0.1 per cent. of the option premium, and on sale of a futures in securities to 0.02 per cent. of the price at which such “futures” are traded.
This amendment will take effect from 1st October, 2024.
Proposed Amendment to section 98 in Chapter VII of the Finance (No.2) Act, 2004 vide Finance Bill, 2024
In the Finance (No.2) Act, 2004, in Chapter VII, in section 98, in the Table, in serial number 4, in column (3), with effect from the 1st day of October, 2024,––
(i) against entry (a) relating to sale of an option in securities, for the figures and word “0.0625 per cent.”, the figures and word “0.1 per cent.” shall be substituted; and
(ii) against entry (c) relating to sale of a futures in securities, for the figures and word “0.0125 per cent.”, the figures and word “0.02 per cent.” shall be substituted.
