Union Budget 2024: Capital Markets Brace for Possible STT Rate Revisions

As the Budget day approaches, D-street analysts are closely watching for potential adjustments or increases in the STT rate in the derivatives market
Union Budget 2024-25
Union Budget 2024-25

The upcoming union budget has kept every industry on the edge of its seat, especially the capital markets. Earlier this year, D-street was raising banners for a cut in Securities Transaction Tax (STT) or atleast a simplification of the slabs around how the tax is allocated. The air seems to have taken a different direction now.

Markets are riding the momentum as Sensex surpassed the 80,000 level mark, while NSE Nifty reached 24,400. Retail investors are enjoying their time under the sun and the derivatives market is witnessing record high volumes.

D-street analysts are now keen on potential increases or adjustments in the STT rate in the derivatives market, particularly on High-Frequency Traders (HFT).

"We may see a rise in STT for F&O trades or the imposition of higher taxes on F&O earnings, continuing the government’s efforts from last year’s STT increase on options and futures contracts by 23.52 per cent and 25 per cent. The focus remains steadfast on safeguarding the interests of the small retail investors," said Shruti Jain, CSO, Arihant Capital.

As of now the STT rate for equity delivery is set at 0.1 per cent on both the buy and sell sides. For intraday trading, the STT is 0.025 per cent on the sell side. For equity futures, the same stands at 0.0125 per cent on the sell side. And for equity options, it's 0.0625 per cent on the sell side and 0.125 per cent upon exercise.

"There are suggestions that in the current budget, the government is planning to treat income from F&O the same as ‘lottery’. This would imply a flat 31.2 per cent tax on gains and the same would be deducted at source. This would, in all likelihood, end speculative retail F&O participation," said Harsh Gahlaut, Co-founder and CEO, FinEdge.

Market regulators have sounded repeated alarms over the surging participation in the F&O (Futures and Options) segment. Back in May, Finance Minister Nirmala Sitharaman cautioned that the rapid growth in retail F&O trading could negatively affect investor sentiment and impact household finances adversely.

As the budget day approaches, capital markets are now looking at adjustments in the taxation slab in the F&O space that could help cool down the retail frenzy.

Dr. Ravi Singh, SVP - Retail Research, Religare Broking Ltd. believes that, "the recent changes in F&O taxation is crucial as it aims to reduce the rapid increase in retail participation in the F&O space. Retail investors would benefit most from this because it may result in less losses. The government wants to encourage retail investors to move more towards investments, which are typically safer and more stable."

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