Save yourself from the STT Trap on Expiry Day! Please square up your in-the money i.e. ITM options expiring today to save yourself from the STT Liability!
If you are an Active Options trader than you would have received or heard this message many times. Have you ever tried to know what is all about ?
Let us explain it with an example,
Assume, you have bought Nifty Options of Strike Price 8700 @ Rs. 100.
You will not be charged any STT as STT is applicable only on the selling side.
So, If you sell that position @ Rs. 100 itself, then you will be charged Rs. 3.75 ((100*75)*0.05%) as STT. STT for selling options is 0.05% on the premium amount.
But, if you carry your option till expiry and your in-the-money option gets exercised, then you will be charged 0.125% STT of the ENTIRE CONTRACT VALUE.
Formula for STT on Exercised options on Expiry of Options
STT on Exercised options on Expiry of Options = 0.125 % * (Strike Price + Premium) * Quantity
This means, if you had bought 1 lot of Nifty 8700 options at Rs 100 and didn’t sell it but let it get exercised on the last day of the contract i.e. the expiry day and if Nifty closed at 8706 on expiry day and your option ends up in the money then, you will be charged a STT of Rs. 816 approx. ((8706*75)*0.125%). This means you will be credited Rs. 450 (6*75) but will get a debit of Rs 816 for STT, so net your account will be debited for Rs. 366 i.e. you will end up paying Rs. 366.
Instead, had you sold it on the exchange then you would have been charged STT of 0.05% only. You can calculate STT on the SAMCO Brokerage and Transaction Charges Calculator. The STT and other transaction charges can also be found on the SAMCO Charge List.
Hence, it is advisable to sell your in-the-money options on the exchange at expiry day.
As, at-the-money and out-of-the-money options expire worthless on expiry, STT would also be zero. Hence, this is applicable only for in-the-money options.
Options Traders must be careful about this STT trap on Index options like the Nifty options and Bank Nifty Options (also in the weekly bank nifty options) and also while trading stock options.
Additional Reference Links
- STT Calculator
- About STT – Securities Transaction Tax
- Regulatory Charges for trading Equities, Equity Derivatives, Currency Derivatives and Commodity Derivatives