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NEW DELHI: The government has raised the transaction tax on certain equity derivative products, a move that may help reign in the frenzied activity in such instruments from retail investors.
Selling an option on a security will attract a tax of 0.0625% from April 1, compared with 0.05% previously, a finance ministry official told reporters after amendments to the Finance Bill were approved by Parliament on Friday. Tax on sale of a futures contract will be 0.125% against 0.01% now.
“One may view it as a revenue generation avenue of the government, but the main idea behind this amendment seems to be to discourage investors from excessive trading in F&O,” said Rahul Charkha, partner at Mumbai-based law firm Economic Laws Practice.
A study from the capital markets regulator found a 500% jump in individual traders in the equity derivatives segment in the year ended March 2022, compared to 2019. Nine of 10 such traders incurred net losses, the data showed.
Individual investors accounted for 35.6% of premium turnover in index options as of January 31, a rise from 28.8% in the year ending March 31, 2020, according to data available on the National Stock Exchange’s website. Share of such investors in turnover of stock options traded on the NSE stood at 31.5% as of January, up from 29.2% in March 2020.