STT on Option Exercise is extremely high and appears to be without logic. My feeling is that this was not intended and could be a case of misinterpretation!
STT rates
Sale of options 0.017% of premium
Sale of options on exercise 0.125% of settlement price.
The 'settlement price' was meant to be the price at which the options contract is settled; There is no premium price available at the exercise time and so the term 'settlement price' is used to mean the settlement price in normal / common usage of settlement.
From NSE site :
Final Exercise settlement price for an option contract shall be the closing price of the relevant
underlying security/index in the Normal Market of the Capital market segment on the expiry
day.
The investor who has long in-the-money options on
the expiry date will receive the exercise settlement value per unit of the option from the
investor who is short on the option
The interim exercise is also on similiar lines.
The above illogical has created interesting scenarios. For example, 5000CE buyer is made to pay when the settlement price,
Settlement Price of Nifty Points equivalent of STT
5000.05 6.25 points
5000.00 0
Even a buyer of futures contract pays only 0.85 points as STT, whereas the buyer of options is made to pay 6.25 points.
Making an option buyer pay STT on the underlying is too much. In the above details from NSE, an option buyer receives the settlement value, but is made to pay STT on settlement price.
Is it because -
1. Definition of settlement price of an option is weird / incorrect / unclear / illogical?
2. STT on options contract on option expiry charges STT on settlement price rather than settlement value?
Or any other reasons?
I am sure everyone will accept that it is wrong to charge taxes on something else other than what is not received. Maybe, it was not meant to be, and has been misinerpreted. I wonder why this has not been brought up or considered before by SEBI (the investor protectors!), Individual / Corporate Members and the traders!
What do you guys think?
STT rates
Sale of options 0.017% of premium
Sale of options on exercise 0.125% of settlement price.
The 'settlement price' was meant to be the price at which the options contract is settled; There is no premium price available at the exercise time and so the term 'settlement price' is used to mean the settlement price in normal / common usage of settlement.
From NSE site :
Final Exercise settlement price for an option contract shall be the closing price of the relevant
underlying security/index in the Normal Market of the Capital market segment on the expiry
day.
The investor who has long in-the-money options on
the expiry date will receive the exercise settlement value per unit of the option from the
investor who is short on the option
The interim exercise is also on similiar lines.
The above illogical has created interesting scenarios. For example, 5000CE buyer is made to pay when the settlement price,
Settlement Price of Nifty Points equivalent of STT
5000.05 6.25 points
5000.00 0
Even a buyer of futures contract pays only 0.85 points as STT, whereas the buyer of options is made to pay 6.25 points.
Making an option buyer pay STT on the underlying is too much. In the above details from NSE, an option buyer receives the settlement value, but is made to pay STT on settlement price.
Is it because -
1. Definition of settlement price of an option is weird / incorrect / unclear / illogical?
2. STT on options contract on option expiry charges STT on settlement price rather than settlement value?
Or any other reasons?
I am sure everyone will accept that it is wrong to charge taxes on something else other than what is not received. Maybe, it was not meant to be, and has been misinerpreted. I wonder why this has not been brought up or considered before by SEBI (the investor protectors!), Individual / Corporate Members and the traders!
What do you guys think?
