While presenting the budget on February 1, Sitharaman announced the STT (securities transaction tax) hikes, saying the move will “provide reasonable course correction” in the Futures and Options (F&O) segment and generate additional revenues for the government.
The FY27 budget has proposed raising the STT on Futures to 0.05 per cent from the present 0.02 per cent, and the STT on options premiums and exercise of options to be raised to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, respectively. The markets saw a sharp fall in the aftermath of the announcements.
In a letter to the finance minister, the Association of NSE Members of India (ANMI) said post-hike, the total cost of futures trading will nearly double due to the sharp increase in STT and added that the tax will account for 84 per cent of the total cost of futures trading.
“ANMI respectfully requests your good offices to consider a rollback of the recent hike and a rationalisation of STT, particularly in the cash market segment, with a view to reducing transaction costs and improving market liquidity,” the letter reviewed by PTI said.
It said that STT has been steadily increased over the last two years, and the measure may not yield the purpose of limiting speculative activity in the markets.
“The higher incidence of STT disproportionately affects futures trading, even though options are generally regarded as more speculative in nature,” the letter said, adding that a more balanced and calibrated approach to transaction taxation would help preserve market efficiency. Flagging that the trading costs are relatively higher in India as compared to global markets, ANMI warned that an increase in transaction costs may have unintended consequences for market liquidity and participation.
“Given that derivatives constitute a substantial portion of overall market volumes, the higher STT is likely to discourage active participation, adversely impact liquidity, and reduce risk-management efficiency,” it said in the letter.
This will have a “direct bearing” on brokerage revenues and the overall vibrancy of the markets, said ANMI, which represents trading members of the National Stock Exchange of India, BSE and Multi Commodity Exchange of India (MCX).
A rollback of the measure will boost market participation, enhance ease of doing business for intermediaries, and further strengthen India’s position as a globally competitive capital market, it added.
