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How is STT computed and how does it affect a “LONG- IN THE MONEY (ITM) OPTION” on expiry?

Most of us are aware that Securities Transaction Tax (STT) is charged on the cash and the F&O segment, although the percentage varies. While we are aware that STT is charged on the sell- side of Equity derivatives, a number of first- time traders have failed to understand the relationship between STT and Options, especially “In the Money (ITM) options”

As per the Finance Act 2004, which was modified by Finance Act 2008 (18 of 2008), STT on the sale of options transactions executed on the Exchange is charged at 0.017 per cent. However, STT is chargeable at 0.125 percent on the sale of an option where the option is exercised on expiry of the contract; all options currently traded are European- style
The value of taxable securities transaction is taken as the option premium; in case of sale of an option. However, the same is calculated at the settlement price; if the ITM option is exercised or not closed out on the expiration date

To get a clearer understanding of the impact of STT on LONG ITM options, let’s take a look at the following representations

Table- 1
STT calculation when a LONG ITM OPTION is COVERED on EXPIRY DATE

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How is STT computed and how does it affect a “LONG- IN THE MONEY (ITM) OPTION” on expiry?

Most of us are aware that Securities Transaction Tax (STT) is charged on the cash and the F&O segment, although the percentage varies. While we are aware that STT is charged on the sell- side of Equity derivatives, a number of first- time traders have failed to understand the relationship between STT and Options, especially “In the Money (ITM) options”

As per the Finance Act 2004, which was modified by Finance Act 2008 (18 of 2008), STT on the sale of options transactions executed on the Exchange is charged at 0.017 per cent. However, STT is chargeable at 0.125 percent on the sale of an option where the option is exercised on expiry of the contract; all options currently traded are European- style
The value of taxable securities transaction is taken as the option premium; in case of sale of an option. However, the same is calculated at the settlement price; if the ITM option is exercised or not closed out on the expiration date

To get a clearer understanding of the impact of STT on LONG ITM options, let’s take a look at the following representations

Table- 1
STT calculation when a LONG ITM OPTION is COVERED on EXPIRY DATE

pic-1

Table- 2
STT calculation when a LONG ITM OPTION is EXERCISED

 

Table- 2
STT calculation when a LONG ITM OPTION is EXERCISED