Union Budget 2024: In the midst of these rumors, there is also a chance of a 30% tax on F&O profits, which would be comparable to a tax on cryptocurrency investments and might be detrimental to market mood.
Union Budget 2024, It seems probable that the Modi administration will increase the income tax on trading in futures and options (F&O). According to sources, the Union Budget may approach the activity of trading derivatives similarly to lottery or cryptocurrency profits. There is a chance that revenue from F&O transactions will be reclassified from “business income” to “speculative income,” and a TDS may be imposed.
A 30% tax on F&O revenue, akin to that on cryptocurrency investments, is also a possibility amid these rumors, which might have a negative impact on market mood.
Nevertheless, Kotak Institutional Equities (KIE) analysts believe that these steps may limit access for low-cost retail investors, primarily option buyers.
Given that 20 percent of retail option traders probably generate 90 percent of premiums, options trading has a large skew, according to a KIE analysis. The brokerage believes that increasing the lot size along with reducing the number of weekly expiries could be a practical solution.
Take a look at what analysts had to say about the likelihood that the government will act to limit high-risk trading in foreign exchange transactions.
“Indian markets have the highest volumes for options contracts globally, where many speculative trades occur,” stated Nishit Master, Portfolio Manager at Axis Securities PMS. Because they are aware of the hazards, the government and market regulator have taken and will continue to take action to reduce risk, particularly for small and medium-sized investors, and preserve market stability. These initiatives, which will support the long-term viability of the market, include raising the margin requirements and/or increasing lot sizes, among other things.
According to Tradejini’s COO, Trivesh D., “A restriction should be in place as a measure for societal benefit—to protect small income groups from suffering significant losses.” A pitiful 2% of options turnover is contributed by 80% of F&O players. A trader ought to be permitted to engage in trading if their net worth is substantial.
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“Trading in futures and options (derivatives) adds depth to the stock market,” stated Shrey Jain, the founder and CEO of SAS Online, India’s Deep Discount Broker. A strong system is in place to keep an eye out for exchange-level abuses. The system has to be examined and adjusted as needed in the best interests of all market players. On the other hand, additional taxes or source-deducted taxes on derivative transactions are not necessary. The stock market overall and trade sentiment in particular would suffer from such a move.
The Head of Fundamental Research at Anand Rathi Shares and Stock Brokers, Narendra Solanki, stated, “I think SEBI as a regulator wants to protect small retail investors from high risks & volatile nature of derivatives markets where there is also the possibility of complete loss of capital if done without any expert advice or strategy.”
The latest wave of new contract launches by the BSE and NSE, following regulatory permission, show an intention to increase market participation, according to Manish Chowdhury, Head of Research at StoxBox, who stated, “We do not anticipate higher margins for F&O trading.” We also believe that any attempt to tighten the system might be counterproductive since it would indicate uncertainty in the highest level decision-making.
“Any steps taken in the interest of the market and to protect the interest of retail investors are and should be welcomed,” stated Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities. Increased option contract margins will discourage small investors with tight budgets from participating in the options market. Other policies, such as requiring a minimum net-worth threshold in order to activate the F&O Segment, might be investigated. You have to realize that the regulator can only guarantee an efficient and equitable market. Before engaging in high-risk derivatives trading, retail investors have a responsibility to educate themselves. On a roadway, no one can assist you if you choose to walk while wearing a blindfold.
According to Nitasha Shankar, Head of Equity Strategy at Yes Securities India, trading in foreign exchange carries a certain amount of risk, therefore it’s critical for players to be aware of these dangers rather than focusing solely on pursuing gains. Any action to control or guarantee this will always be appreciated.
