STT on Option Exercise?

[eqderiv]

May Nifty options settled at 5003.10 last Thursday - I had 1 long 5000 Call, and expected to get paid Rs 155. After Commissions, service taxes, etc, I expected to get paid about Rs 55.

However, ICICI charged STT of Rs 312, and because of this, I ended up LOSING money on the option! This makes no sense, because you need not exercise the option at all in such a scenario! Why would you exercise an option and lose money as well in the process!

I am not sure if it is SEBI that has come up with such a ridiculously high STT for exercising an option (6 index points - way too high!), or if ICICI has messed the calculation!

Whatever it is, this makes no sense at all.

This should be happening pretty much ALL the time for Stock Futures - I am surprised no one has seen this before or fixed it! Yet another example of illogical market structure in India! Dont these guys think through these issues before coming up with rules like this?

Anyone have any idea what is going on?

 

[trader.trends]

May Nifty options settled at 5003.10 last Thursday - I had 1 long 5000 Call, and expected to get paid Rs 155. After Commissions, service taxes, etc, I expected to get paid about Rs 55.

However, ICICI charged STT of Rs 312, and because of this, I ended up LOSING money on the option! This makes no sense, because you need not exercise the option at all in such a scenario! Why would you exercise an option and lose money as well in the process!

I am not sure if it is SEBI that has come up with such a ridiculously high STT for exercising an option (6 index points - way too high!), or if ICICI has messed the calculation!

Whatever it is, this makes no sense at all.

This should be happening pretty much ALL the time for Stock Futures - I am surprised no one has seen this before or fixed it! Yet another example of illogical market structure in India! Dont these guys think through these issues before coming up with rules like this?

Anyone have any idea what is going on?

The STT charged is correct. The STT on exercising is charged on the contract value (settlement price) and not on the premium. It is always best to close your position before expiry to avoid the heavy STT. When you close your position you pay only STT on the premium. Here is the extract from NSE

Securities Transaction Tax

STT Computation
As per the Finance Act 2004, and modified by Finance Act 2008 (18 of 2008) STT on the transactions executed on the Exchange shall be as under:

Sr.No. Taxable securities transaction New rate from
01.06.2008 Payable by
A B C D
a Sale of an option in securities 0.017 per cent Seller
b Sale of an option in securities, where option is exercised 0.125 per cent Purchaser
c Sale of a futures in securities 0.017 per cent Seller

1. Value of taxable securities transaction relating to an option in securities shall be the option premium, in case of sale of an option in securities.


2. Value of taxable securities transaction relating to an option in securities shall be the settlement price, in case of sale of an option in securities, where option is exercised.

 

[Capricorn]

May Nifty options settled at 5003.10 last Thursday - I had 1 long 5000 Call, and expected to get paid Rs 155. After Commissions, service taxes, etc, I expected to get paid about Rs 55.



Anyone have any idea what is going on?

:lol: you are not the first one to get caught in that trap

 

[munde_77]

:lol: you are not the first one to get caught in that trap

:lol:

 

[munde_77]

The STT charged is correct. The STT on exercising is charged on the contract value (settlement price) and not on the premium. It is always best to close your position before expiry to avoid the heavy STT. When you close your position you pay only STT on the premium. Here is the extract from NSE

Securities Transaction Tax

STT Computation
As per the Finance Act 2004, and modified by Finance Act 2008 (18 of 2008) STT on the transactions executed on the Exchange shall be as under:

Sr.No. Taxable securities transaction New rate from
01.06.2008 Payable by
A B C D
a Sale of an option in securities 0.017 per cent Seller
b Sale of an option in securities, where option is exercised 0.125 per cent Purchaser
c Sale of a futures in securities 0.017 per cent Seller

1. Value of taxable securities transaction relating to an option in securities shall be the option premium, in case of sale of an option in securities.


2. Value of taxable securities transaction relating to an option in securities shall be the settlement price, in case of sale of an option in securities, where option is exercised.