In the Finance Bill 2023 passed by the Lok Sabha on March 24, the securities transaction tax on the sale of F&O contracts was hiked by 25%. However, the magnitude of the hike created confusion among traders.

As per the amendments, the STT for option sales with a turnover of Rs 1 crore has been raised to Rs 2,100 against the previous levy of Rs 1,700. This represents a rise of 23.5%.

On the sale of futures, the tax on turnover of Rs 1 crore was raised to Rs 1,250 from Rs 1,000 earlier. This represents a 25% increase.

Essentially, the STT for selling futures has been raised from 0.01% to 0.0125%, and for options, from 0.017% to 0.021%.

According to NSE, the STT for selling options was revised from 0.017% to 0.05% in 2016.

Introduced in 2004, the STT is levied on transactions involving all types of securities. All stock market transactions involving equity or equity derivatives, such as futures and options, are liable under the STT, as are mutual fund transactions.

The government expects to collect Rs 27,625 crore from Securities Transaction Tax (STT) in FY24, which is 10.5% higher than the revised budget estimate for the previous fiscal.

The budget for FY23 projected revenue of Rs 20,000 crore, revised to Rs 25,000 crore on February 1, 2023, an increase of 25%. In FY22, the government raised Rs 23,191 crore.

STT is a direct tax levied by the central government on selling and purchasing securities such as stocks, futures and options. Introduced in 2004, the STT is governed by the Securities Transaction Tax Act (STT Act), which explicitly lists various taxable securities transactions.

The increase in STT is one of the amendments proposed in the Finance Bill 2023. Lok Sabha on Friday passed the Finance Bill with 64 official amendments to effect the tax proposals amid uproar by opposition members demanding a Joint Parliamentary Committee (JPC) probe into allegations against the Adani group following a report by US-based short seller Hindenburg Research.