Stock market changes from October 1: What investors need to know

The changes include revised transaction charges by stock exchanges, an increase in Securities Transaction Tax (STT), and new taxation rules governing share buybacks.

In Short

• Three key stock market changes come into effect from October 1
• F&O trade to attract higher securities transaction tax
• Higher transaction changes on both BSE and NSE

Three crucial changes are set to take effect in the stock markets from October 1, and investors need to be aware of these adjustments to navigate potential challenges and seize new opportunities.

The changes include revised transaction charges by stock exchanges, an increase in Securities Transaction Tax (STT), and new taxation rules governing share buybacks.

Revised transaction charges

Starting October 1, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) will implement new transaction fees for cash, futures, and options trading.

This shift follows a directive from the Securities and Exchange Board of India (Sebi), which mandated a uniform flat fee structure for all members of market infrastructure institutions.

For instance, the BSE has adjusted its transaction fees for Sensex and Bankex options contracts in the equity derivatives segment to Rs 3,250 per crore of premium turnover.

Meanwhile, transaction charges for other contracts in this segment remain unchanged. Specifically, BSE will charge Rs 500 per crore of premium turnover for Sensex 50 options and stock options, while index and stock futures will incur no transaction fee.

On the NSE, the cash market transaction fee will be set at Rs 2.97 per lakh of traded value.

For equity futures, the fee will be Rs 1.73 per lakh of traded value, while equity options will attract a fee of Rs 35.03 per lakh of premium value.

In the currency derivatives segment, futures will cost Rs 0.35 per lakh of traded value, with options incurring a fee of Rs 31.10 per lakh of premium value.

The uniform fee structure aims to eliminate disparities that existed under the previous slab-wise system, which often favored larger players with higher trading volumes.

Increase in Securities Transaction Tax (STT)

In a move aimed at curbing speculative trading in the rapidly growing derivatives market, Finance Minister Nirmala Sitharaman announced an increase in STT on Futures & Options trading earlier this year.

Effective October 1, the STT on futures will rise from 0.0125% to 0.02%, while options trading will see an increase from 0.0625% to 0.1%.

Analysts suggest that this hike may dampen trading volumes and depth in the market, potentially affecting revenues for exchanges and Sebi.

The government’s objective is clear: to temper excessive speculation that has characterised retail derivative trading in recent years.

New taxation rules on share buybacks

Another significant change is the taxation of income from share buybacks, which will now be treated as dividend income for shareholders effective October 1.

This shift means that shareholders will be taxed according to their applicable income tax slabs when companies repurchase their shares.

Historically viewed as a tax-efficient method for returning cash to investors, share buybacks are now subject to increased tax burdens on shareholders rather than corporations.

The change is designed to allow companies greater flexibility in utilising funds for growth initiatives instead of being constrained by tax liabilities associated with buybacks.