Futures and options (F&O) trading in India’s stock and commodity markets will now be subject to higher taxes beginning in April 2023. The government increased the securities transaction tax (STT) on the sale of options by 23.52 % and futures contracts by 25%.

The most significant impact will be on the volumes churned by High-Frequency Traders (HFT), or high-octane automated machines. More than 95% of India’s equities market volume is concentrated in derivatives, with HFT machines driving the majority of churn.

Exception
Normally, such a significant proposal would be revealed in the budget, but this time was an exception, as the administration elected to introduce this raise as an amendment to the Finance Bill.

By the end of March 2023, the government aims to collect more than 20,000 crores in STT from stock exchanges, which is 60% higher than the previous year. Nonetheless, the current tax increase may provide the government with a windfall.

Actual STT receipts in 2020-21 were 16,927 crores, according to this year’s budget documents. STT was introduced in India in 2004 for various types of securities transactions. All stock market transactions involving equity or equity derivatives such as F&O are subject to taxation.