With an objective to curb excessive speculation in futures and options (F&O) markets, Finance Minister Nirmala Sitharaman, while presenting her record seventh straight Union Budget on July 23, proposed to hike security transaction tax (STT) on futures and options (F&O) of securities to 0.02% and 0.01%, respectively. This amendment will take effect from October 1, 2024.
Sharing his views on STT, Ashish Nanda, President and Head - Digital Business, Kotak Securities said that STT has been increased on both futures and options from October 1, 2024, this is the same date when exchange turnover charges will be reduced.
“The net impact will be largely net neutral for the customer. For example, STT on options will increase by Rs 3.75 per Rs 10,000 round trip premium turnover while exchange turnover charges should reduce by around Rs 3.50 to Rs 4,” Nanda said.
V K Vijayakumar, Chief Investment Strategy, Geojit Financial Services said, “The higher taxes on F&O were expected and this is being done to reduce the excessive speculative trades in the market.”
Meanwhile, domestic equity witnessed a knee-jerk reaction during the Budget speech as Sensex plunged more than 1,000 points after FM increased LTCG and STCG rates along with higher STT on F&O transactions, which had caught investors off guard. Before settling 73 points down at 80,429 on July 23, the benchmark BSE Sensex hit an intraday high of 80,766.41 and an intraday low of 79,224.32.
Prashanth Tapse, Senior VP (Research), Mehta Equities said, “Both key benchmark indices erased almost all of its losses to end marginally lower as the government’s focus on lower fiscal deficit, increased spend on infrastructure and focus on rural spending helped calm the nerves of the traders.” Amar Ambani, Executive Director, YES Securities said that barring the capital gains tax dampener for the investor community and removal of indexation benefit, the Union Budget was balanced and consistent in policy.
“Brushing aside concerns around more populism, the target set for the fiscal deficit at 4.9% is a huge positive. The agriculture package of Rs1.5 lakh crore is along expected lines and will help provide a fillip to the rural economy. There has been a material push in uplifting the financial health and borrowing ability of MSMEs,” Ambani said.