In a Union Budget announcement on Tuesday, Finance Minister Nirmala Sitharaman revealed significant amendments to securities transaction tax (STT). Addressing the nation, she outlined the government's decision to adjust STT rates, particularly on futures and options (F&O) trades, as part of the 2024 budget reforms. These changes aim to redefine the fiscal landscape governing financial markets.
The Securities Transaction Tax was initially introduced in the 2004 Budget and enforced from October of that year by then-Finance Minister P. Chidambaram. It was introduced to combat tax evasion related to capital gains. At the time of its introduction, it was anticipated that STT would replace the long-term capital gains (LTCG) tax.
Under the revised provisions, the STT on F&O transactions sees a notable increase:
The Finance Minister emphasised, "It is proposed to increase the rates of STT 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.”
The STT is a mandatory levy implemented as a percentage of the transaction value. Its primary objective is to curb tax evasion by ensuring that transactions are taxed at the source. The tax applies to various financial instruments traded on exchanges, including stocks, futures, options, mutual funds, and exchange-traded funds (ETFs).
The application of STT varies based on the nature of the transaction:
The revised STT rates are expected to influence market behaviour and trading strategies. Investors and market participants may reassess their approach to F&O transactions due to the increased tax burden. Moreover, the adjustment in STT rates underscores the government's commitment to maintaining transparency and accountability in financial transactions.
