Budget proposal to streamline STT comes as relief for traders: Analysts

The budget proposal on streamlining Securities Transaction Tax has come as a relief for traders as the charge will no longer be made on the value of the contract but on the difference between the strike and the market price only, analysts said Friday. In her Budget speech, Finance Minister Nirmala Sitharaman said that STT is proposed to be restricted to the difference between settlement and strike price of options.

Welcoming the move, Rohit Srivastava, Fund Manager- PMS, Sharekhan said: "The STT change is a big relief to options traders as the STT charge will no more be made on the value of the contract but on the difference between the strike price and the market price only. For options that close in the money, it would not force traders to square up in the last hour of trading as was the case earlier". "Most traders would try squaring up to avoid the higher STT that made it expensive to hold onto a position that was in the money ahead of expiry. Now, the cost is not restrictive and one can allow it to expire in the money to lock in gains."

STT, which was introduced in 2004, is levied on the sale and purchase of equities. According to Amit Gupta, CEO and co-founder TradingBells, STT levy has been streamlined, and the charge for exercised options will now be applied only to the difference between settlement and exercise price. It is a relief since now traders won't have to be worried about compulsorily squaring off in-the-money options before expiry.

"We would request her (Finance Minister) to also consider the reintroduction of erstwhile Section 88 E so that professional share traders are not taxed twice once at STT stage and then on their incomes at the maximum marginal rate. This will also give the desired fillip to the volumes in share markets, increasing government revenue," Association of National Exchange Members of India (ANMI) President Vijay Bhushan said. According to Vinay Pandit, Head-Institutional Equities, IndiaNivesh: "LTCG (long-term capital gains ) tax has not brought in any incremental income to the government and should be preferably rolled back. In return, STT should be increased since it is a guaranteed income unlike the former".

The proposal to restrict the STT to the difference between settlement and strike price will make equity options traders happy with less tax and allow them to lock-in to the gains up to the settlement price of the option. We can see increased volumes in equity derivative trading in the near future, said Romesh Tiwari, Head of Research, CapitalAim.

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