From the month of April 2023 forward, traders who engage in Futures and Options (F&O) trading on India’s stock and commodity market would be subject to increased taxation. The securities transaction tax (STT) that is levied on the purchase and sale of futures contracts and options has been increased by the government by a total of 25 percent and 23.52 percent, respectively.

Finance Bill 2023

The High-Frequency Traders (HFT), also known as high-octane automated machines, will be the primary group affected by this move because it will primarily have an effect on the volumes churned by HFT. More than ninety-five percent of the volume traded on India’s equities market is concentrated in derivatives, and the majority of the churn in that market is driven by high-frequency trading (HFT) computers.

Finance Bill amendments

The Goods and Services Tax (GST) rate on the sale of options has been increased to 2,100 rupees per crore of turnover, up from an earlier applicable levy of 1,700 rupees under amendments made to the Finance Bill 2023. The Securities Transaction Tax (STT) levied on the sale of futures contracts has been increased from the previous rate of 1,000 rupees per crore of turnover to 1,250 rupees per crore. When it comes to options, the STT is levied against the premium and not the strike price itself.

“Profit earned from trading derivatives is considered to be capital gain for foreign portfolio investors. This move will result in an increase in the cost of operations for high-frequency trading foreign portfolio investors (HFT FPIs) in India because the STT is not an expense that can be deducted when computing the amount of capital gains income. Suresh Swamy is a partner at the law firm of PW & CO LLP.