A slew of changes in regulatory & tax rules from October

Effective October 1, as many as nine regulatory and tax changes will come into effect for the equities market. These changes include uniform transaction fees for brokers, new buyback structure, higher tax on derivatives trades and faster trading of bonus issues.

Higher STT on derivatives trades

The purpose of levying higher security transactions tax (STT) on equity derivatives is to curb excessive speculation in the segment. The STT on futures and options (F&O) trades has been increased to 0.02% from 0.1%. While the impact on options trading is expected to be minimal, experts anticipate a more pronounced effect on futures trading.

New buyback tax structure

Under the new regulations, the tax liability will shift from companies to shareholders, who will bear the tax burden on buyback proceeds, taxed as dividend income based on their individual tax brackets. Employees of startups may also see a significant increase in taxes on their employee stock option (ESOP) exits through buybacks.

Uniform transaction charges on brokers

Brokerage houses, particularly discount and large brokers, are bracing for the uniform transaction fee structure. The removal of the slab-wise fee system, which previously offered discounts based on trade volumes, could affect larger brokers. For instance, Zerodha’s CEO Nithin Kamath anticipates a 10% revenue reduction due to this shift.

The National Stock Exchange (NSE) has already revised its charges – Rs 297 per crore of traded value for the cash market, Rs 173 per crore for equity futures and Rs 3,503 per crore of premium value for equity options.

All Sensex and Bankex options will have a transaction fee of Rs 3,250 per crore of premium turnover value, while stock options and Sensex 50 options will have a transaction fee of Rs 500 per crore of premium turnover value.

Direct payout of securities

Brokerage houses have also been making various back-end and technological changes to facilitate the direct payout of securities by clearing corporations to clients’ demat accounts from October 14. The new rule eliminates the practice of brokers pooling securities before distribution, removing any risk to investor funds.

‘Choice of nomination’ pop-up

Depositories and depository participants will send a pop-up to encourage existing investors to provide a ‘choice of nomination’ while logging into their demat accounts from October 1.

Centralised fee mechanism for RIAs/RAs

Sebi’s centralised fee collection mechanism for registered investment advisors (RIAs) and research analysts (RAs) is scheduled to be operational from October 1. Under this mechanism, clients will pay fees to IAs/RAs, through a designated platform or portal administered by the BSE to ensure clients are not defrauded by unregistered finfluencers.