Equity and derivatives transactions in the stock exchange have been attracting securities transaction tax (STT) since 2004. There have been several changes to the imposition of STT since it was first introduced 13 years ago. For example, the rates of STT on equity and on F&O have been substantially brought down compared to what they were in 2004. Secondly, there has been a fine tuning of the definition of volumes in case of derivatives. So, while the STT on futures transactions is still imposed on the notional value of the transaction, the STT on options transactions is imposed on the premium value of the transaction. Let us understand how this difference works out…

The case of STT on Futures

The case of STT on Options

Assume Nifty Futures price at 9900

Assume Nifty 9950 Call Premium at Rs.50

Lot size applicable – 75 Shares

Lot size applicable – 75 Shares

Notional Value of 1 lot – Rs.742,500 (9900 X 75)

Premium Value of 1 lot – Rs.3750 (75 X 50)

Rate of STT charged - 0.01%

Rate of STT charged – 0.05%

Actual STT payable on 1 lot = Rs.74.25

Actual STT payable on 1 lot = Rs.1.88

STT payable by the – Seller

STT payable by the - Seller

As the above table clearly indicates, the STT payable on 1 lot of options is substantially lower than the STT payable on 1 lot of futures. This is despite the fact that the STT on options had been recently hiked 3-fold from 0.017% to 0.05%. The reason is that options are charged STT on their premium value while futures are charged STT on their notional value. This has been one of the key reasons for the rapid growth of option volumes in India.