Introduction of the tax:
The tax prevalence on the settlement of derivative contracts by taking physical delivery of securities is positioned to amplify tenfold when measured up tothose who settle in cash.
The Bombay High Court was notified by the Central Bureau of Direct Taxes (CBDT) that physical settlement in the equity and derivatives segments will pull towards the same securities transaction tax.
The delivery of shares worth Rs 1 crore will now be taxed Rs 10,000 as disparate to Rs 1,000 previously.
Petition filed by NSE and appointment of Bench members:
A petition has been filed by members of the National Stock Exchange (NSE). Justice MS Karnik and BR Gavai had been appointed as the two-member bench for the investigation into the matter. They had sought appropriate justification from the Central Bureau of Direct Taxes.
Followed by the exchange moved 46 stocks in the futures and options segment to the compulsory delivery category, the uncertainty over the tax liability on securities transactions came to the forefront.
This modification was made pertinent since July. The market regulator also passed an order through which equity derivatives were ordered to transfer to physical settlement in a falteredmethod.
Benchmark standard in collecting tax:
The existing rate in the derivatives segment will be the standard in collecting tax from clients. Members of the exchange will be accountable to pay the differential if the taxman makes an upward revision of the rate.
The exchange solicited the brokers to accumulate the tax from clients based on the rate applicable in the derivatives segment, and also made the members responsible to pay the differential if the taxman seeks a higher rate.
On the other hand, the tax department issued anelucidation that the settlement of derivative contracts by taking delivery of shares will not be different from the procedure pursued for equity contracts.
According to NSE sources:
Majority of the investors close out their positions before the expiry of the contract as an alternative by taking delivery of the securities., the total value of physically settled securities was Rs 240 crore for the month of June in the derivatives segment. The daily turnover was Rs 10 lakh crore for the period under contemplation.
The tax department elucidated that a derivative contract being settled by taking delivery of shares would not be diverse from taking delivery of shares in an equity contract.
What are the important things Investors have to be vigilant?
Investors generallychoose to close out the positions to the fore of the expiry of the contract, as an alternative of taking delivery of securities. For July, the total value of physically settled securities in the derivatives segment was Rs 240 crore. That measures up with the daily trading turnover of Rs 10 lakh crore. The August contracts expire this week - last Thursday of the month. (Today)
The below mentioned 46 shares F&O position should be cut before 4 days of expiry as per new rule of SEBI.
1. ADANIPOWER 11. DCBBANK 21. JUSTDIAL 31. PTC 41. RAMCOCEM
2. AJANTPHARM 12. GODFRYPHLP 22. KSCL 32. PVR 42. TORNTPOWER
3. ALBK 13. GODREJIND 23. KPIT 33. RCOM 43. TV18BRDCST
4. ANDHRABANK 14. GRANULES 24. MGL 34. RNAVAL 44. UBL
5. BALRAMCHIN 15. GSFC 25. MRPL 35. RPOWER 45. VGUARD
6. BEML 16. HEXAWARE 26. NHPC 36. REPCOHOME 46. WOCKPHARM
7. BERGEPAINT 17. HCC 27. NIITTECH 37. SIEMENS
8. CANFINHOME 18. IDBI 28. OIL 38. SREINFRA
9. CGPOWER 19. IFCI 29. OFSS 39. SRF
10. CHENNPETRO 20. JPASSOCIAT 30. ORIENTBANK 40. SYNDIBANK
What is the Bad news for F&O traders?
Traders need to be vigilant while trading those 46 stocks in which there is physical settlement.
Physical delivery of has to be taken upon failure to sell before 4 days of expiry date.
Your lot will go into auction and a huge penalty will be imposed as a consequence, if you do not buy 4 days before the short Position (Call-Put) before Expiry Date.
Traders taking physical delivery to settle derivative contracts will have to pay tenfold higher transaction tax than those who settle in cash.
Same STT will be applicable to physical settlement in derivatives & equity segment
Expert Opinion on the impact of Compulsory delivery in F&O trading
According to Mr.Ponmudi, Market analyst and Managing Director at Enrich Commodities, the following impact is likely:
This method is followed by MCX market currently in Options trading and there has been no much impact in the terms of volume. Moreover, if the same is adopted in stocks, the outcome would result in the same. There are chances that the move could likely lower the trading volumes in the contracts.
Stocks could move into a discount concerned to spot prices when they are close to expiry.