Increased STT to cool market activity? What Zerodha founder said
Finance Minister Nirmala Sitharaman has proposed a significant increase in the Securities Transaction Tax (STT) on Futures and Options (F&O) trading for the 2024 budget. Starting October 1, STT on options will increase from 0.062% to 0.1%, while on futures, it goes up from 0.0125% to 0.02%. In addition, the government has hiked long-term capital gains (LTCG) tax rate from 10% to 12.5% while short-term capital gains (STCG) tax rate has risen from has risen from 15% to 20%.
Sensex, Nifty 50 fell nearly 2% each after Sitharaman's announcement
Following Sitharaman's announcement, the Indian stock market experienced a significant drop. Both Sensex and Nifty 50 fell nearly 2% each, with the Nifty 50 index experiencing a dip of as much as 1.8% at the day's low. These changes in market benchmarks occurred shortly after the proposed levies were announced by Sitharaman. However, the markets did recover toward closing bell but closed in the red.
Proposed tax changes aim to curb derivatives trading
The proposed tax changes are seen as an effort to curb derivatives trading by retail investors. This follows warnings from financial authorities about potential losses in F&O trading. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), currently the world's top two bourses in terms of F&O volume, could be significantly impacted. The Economic Survey 2024 released earlier this week cautioned that speculative trading such as derivatives has no place in a low per capita income country like India.
Nithin Kamath says increased taxes will cool down market activity
Mentioning the increased STT, LTCG, STCG tax rates, Zerodha co-founder Nithin Kamath wrote on X: "If the idea was to cool down the activity in the markets, this might just do the trick." Saurabh Jain of SMC Global Securities, said, "The decision to raise the rate for equity and index traders is going to have a negative impact on the Indian stock market in the near term. It will discourage F&O trade if this budget proposal gets implemented."
Take a look at Kamath's post
NSE CEO views tax changes as minor
Ashish Chauhan, CEO and Managing Director of the NSE, termed the Budget's moves on STT and STCG as "minor changes" which will not impact markets much. He described these moves as "baby steps" toward transitioning to a regime where all incomes are taxed but also welcomed it for ensuring that capital formation continues in the economy. Chauhan added that the increased taxation on STT and STCG is an outcome of criticism around derivative volumes.
