The Securities Transaction Tax (STT) collection has surged by more than 75% to Rs 44,538 crore as of January 12, 2025, compared to Rs 25,415 crore during the same period in 2024. This remarkable increase in STT revenue comes despite a recent hike in the tax rate on futures and options (F&O) trading, aimed at curbing speculative activity in the market.
The rise in STT collections follows the announcement made by Union Finance Minister Nirmala Sitharaman in the Budget 2024-25, which proposed to double the STT on F&O of securities, effective October 1, 2024. Interestingly, the collection began to rise in July 2024, even as the stock market experienced both a significant rise and a major correction later in the year.
While STT mobilization stood at Rs 16,634 crore on July 11, 2024, it grew substantially, reaching Rs 30,630 crore by October 10, Rs 35,923 crore by November 10, and Rs 40,114 crore by December 17, 2024. Despite the sharp correction in the market that followed, the collection continued its upward trajectory, highlighting the disconnect between market performance and STT revenues.
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For context, the BSE Sensex, which stood at 80,429.04 points on July 23, 2024, peaked at an all-time high of 85,978.25 on September 27, 2024, before dropping to 76,499.63 by January 14, 2025. However, market fluctuation could not affect the STT rise, indicating continued volume of trading activity in the F&O segment.
As the Indian Express reports, the increase in STT is significant not only because of its impact on market activity but also due to its contribution to government revenues. With Rs 44,538 crore collected so far, STT revenue has already surpassed the budget estimate of Rs 37,000 crore for the financial year 2024-25. In comparison, the revised STT revenue for FY 2023-24 was Rs 32,000 crore, and it stood at Rs 25,085 crore in FY 2022-23.
As part of the changes, the government raised the STT rate on futures and options of securities to 0.02% and 0.1%, respectively, from the earlier rates of 0.0125% and 0.0625%. Additionally, the STT on equity delivery trades was set at 0.1% on both purchase and sale transactions.
However, despite the rise in STT, the premium turnover in the F&O segment has seen a decline. Following restrictions imposed by the Securities and Exchange Board of India (SEBI) on derivative trading, aimed at curbing excessive speculation, F&O turnover decreased significantly. From Rs 54.38 lakh crore in September 2024, it dropped to Rs 43.99 lakh crore by December 2024, and further to Rs 17.47 lakh crore by January 2025.
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Notably, the STT collection rose by Rs 4,424 crore between December 17, 2024, and January 12, 2025, at a time when the BSE Sensex corrected by over 3,000 points. Notably, higher rates on F&O triggered the increase in STT. For example, on a round-trip premium turnover of Rs 10,000 in options, the STT increased from Rs 6.25 to Rs 10, and in futures, it rose from Rs 1.25 to Rs 2 for every Rs 10,000 of turnover.
Despite the positive growth in STT collections, major market players are calling for a reduction in the levy. The Association of Mutual Funds in India (AMFI) has recommended a rollback in the increased STT rates for arbitrage funds and equity savings funds in its Budget 2025-26 proposal. AMFI argued that these funds rely on futures and options for hedging purposes, and the higher STT burden is adding to their costs.
“Arbitrage and equity savings funds mainly use futures and options for hedging as the underlying assets. The increased STT on futures adds to the cost of these funds,” AMFI stated in its proposal.
The debate on STT rates is likely to continue as the government seeks to balance revenue generation with market stability, and as investors continue to adapt to the evolving regulatory landscape.