Despite the volatility in the stock market, the collection of Securities Transaction Tax (STT) rose by over 75 percent to Rs 44,538 crore as of January 12, 2025 compared to Rs 25,415 crore raised during the same period in 2024. The collection comes despite an increase in STT on futures & options (F&O) securities that was levied in a bid to curb speculative market activity in the F&O segment.
The 2024-25 budget, presented by Union Finance Minister Nirmala Sitharaman on July 23, had proposed to double the STT on F&O securities, from October 1, 2024. However, the collection of STT has been increasing since July and the climb continued even. when the stock market rose sharply and then experienced a major correction between July and December 2024.
While the STT mobilization was Rs 16,634 crore on July 11, 2024, it jumped to Rs 30,630 crore on October 10, Rs 35,923 crore on November 10 and Rs 40,114 on December 17.
The BSE Sensex which was at 80,429.04 on July 23 last year touched an all-time high of 85,978.25 on September 27 last year before correcting to 76,499.63 on January 14, 2025.
The increase in STT, levied on transactions in certain securities, comes at a time when the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are raising concerns about rising volumes in the futures and options sector. , which may pose a threat to macroeconomic stability.
The increase in STT collections also adds to the government’s revenue. With Rs 44,538 crore collected so far, STT’s revenue has already breached the budget target of Rs 37,000 crore for the ongoing financial year 2024-25. In the previous financial year 2023-24, STT’s revenue was estimated at Rs 32,000 crore (revised estimate) and Rs 25,085 crore in 2022-23.
The STT for futures and options securities was increased to 0.02 percent and 0.1 percent respectively. Previously, the STT levy rate on securities option sales was 0.0625 percent of the option premium, while the STT levy rate on securities futures sales was 0.0125 percent of such price. the future is for sale. The STT levy rate on delivery transactions in shares is 0.1 percent for both buying and selling.
However, premium income from F&O has declined since Sebi imposed restrictions on derivatives trading due to over-speculation by retail investors – down from Rs 54.38 lakh crore in September 2024 to Rs 43.99 lakh crore in December 2024, to -Rs. 17.47 lakh crore in January 2025 (till January 14th) on NSE.
“Retail investors were working in the money market and mutual funds also invested in the market as they received a lot of money even though the markets were weak. The statistics of the STT collection show that it has no correlation with the fall or rise of the market. “STT increased when the market went up and when it went down,” said the analyst.
Waking up at a time when Sebi, RBI raised F&O concerns
The increase in STT, which is levied on transactions in specified securities, comes at a time when Sebi and RBI are raising concerns about the future increase in volumes and options segment.
In fact, the rise of Rs 4,424 crore in STT collections from December 17 to Rs 44,538 crore on January 12 happened when the BSE Sensex saw a correction of over 3,000 points. Since STT is charged only by the seller, on a round trip premium of Rs 10,000 in STT options it has increased from Rs 6.25 to Rs 10. Similarly, in the future, STT has led to an increase from Rs 1.25 to Rs 2 on every Rs 10,000 of profit.
While retail investors flocked to the F&O sector over the past three years, policymakers were worried about their losses. Nine out of ten investors were losing money at this stage. Although the STT collection has increased in the last five months, the major market players are demanding a reduction in the tax.
The Association of Mutual Funds in India (AMFI) in its Budget proposal for 2025-26 has called for a reduction in STT for arbitrage funds and equity savings funds. “For mutual funds as an investor, the STT of futures and options should be restored to earlier levels,” AMFI said in the proposal.
The mutual fund body said that arbitrage and equity savings funds mainly use futures and options on derivatives as underlying assets. “Current arbitrage has been reduced due to the increase in short-term capital gains tax. In addition, future STT increases will add to the cost of these funds,” he said.
Discover the Benefits of Our Subscription!
Stay informed with access to award-winning journalism.
Avoid misinformation with reliable, accurate reporting.
Make smart decisions with important details.
Choose your subscription package