Despite the volatility in the stock market, the Securities Transaction Tax (STT) collection has shot up by over 75 per cent to Rs 44,538 crore as of January 12, 2025 as against Rs 25,415 crore raised in the same period in 2024. The rise in collections comes despite a hike in STT on futures & options (F&O) of securities that was levied in a bid to curb speculative market activity in the F&O segment.
The Budget 2024-25, presented by Union Finance Minister Nirmala Sitharaman on July 23, had proposed to double the STT on F&O of securities, effective October 1, 2024. However, STT collection has been on the rise since July and the rise continued even when the stock market rose sharply and then encountered a major correction between July and December 2024.
While STT mobilisation 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 hit an all-time peak of 85,978.25 on September 27 last year before correcting to 76,499.63 on January 14, 2025.
The increase in STT, which is levied on transactions in specified securities, came at a time when the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) raised concerns over the rise in volumes in futures and options segment, which can pose a risk to macroeconomic stability.
The increased STT collections are also adding to the revenue kitty of the government. With Rs 44,538 crore collected so far, STT revenue has already breached the budget estimate of Rs 37,000 crore for the ongoing financial year 2024-25. In the previous financial year 2023-24, the STT revenue was estimated to be Rs 32,000 crore (revised estimate) and Rs 25,085 crore in 2022-23.
STT on futures and options of securities was increased to 0.02 per cent and 0.1 per cent respectively. Earlier, the rate of levy of STT on the sale of an option in securities was 0.0625 per cent of the option premium, while the rate of levy of STT on the sale of a future in securities was 0.0125 per cent of the price at which such futures are traded. The rate of levy of STT on delivery trades in equity shares is 0.1 per cent on both purchase and sale transactions.
However, the premium turnover in F&O declined since after the Sebi slapped restrictions on derivative trading in the wake of rampant excessive speculation by retail investors – it declined from Rs 54.38 lakh crore in September 2024 to Rs 43.99 lakh crore in December 2024, and to Rs 17.47 lakh crore in January 2025 (till January 14th) on the NSE.
“Retail investors were active in the cash market and mutual funds also pumped money into the market as they received huge inflows despite the volatility in the market. The STT collection figures show that it has no correlation with the market fall or rise. STT increased when the market rose and also when it later declined,” said an analyst.
In fact, the Rs 4,424 crore rise in STT collection from December 17 to Rs 44,538 crore by January 12 happened at a time when the BSE Sensex witnessed a correction of over 3,000 points. Since STT is charged only to the seller, on a round-trip premium turnover of Rs 10,000 in options STT increased from Rs 6.25 to Rs 10. Similarly, in futures, STT led to an increase from Rs 1.25 to Rs 2 for every Rs 10,000 of turnover.
When retail investors flooded the F&O segment three years ago, policy makers were worried about losses to them. Nine out of 10 investors were losing money in this segment. While STT collection has increased in the last five months, major market players are lobbying for a reduction in the levy.
Association of Mutual Funds in India (AMFI) in its proposal for the Budget 2025-26 has requested for reduction in STT for arbitrage funds and equity savings funds. “For mutual funds as an investor, the STT on futures and options should be reinstated to the earlier rates,” AMFI said in the proposal.
The mutual fund body said that arbitrage and equity savings funds mainly use futures and options for hedging as the underlying assets. “The available arbitrage has now been reduced due to an increase in short term capital gain tax. Further, the increased STT on futures will add to the cost of these funds,” it said.
