If you’re planning to trade in the Indian financial markets, you need to know about the various costs that can potentially impact your profits. Being aware of them can also help you plan your trades better and make you more efficient.
Costs Associated with Trading in the Indian Financial Markets
From brokerage costs and transaction charges to the various central and state government taxes, let’s look at the plethora of different expenses that you need to account for when trading.
1. Brokerage fees
Brokerage fees are one of the major costs that can significantly impact your returns. It’s often the most sizable expense compared to the others. Brokerage is essentially the fee that stockbrokers levy for facilitating trades through their platform.
The amount of brokerage you need to pay may vary based on factors such as the type of asset or trading segment, trading volume and brokerage plan. Generally, brokerage fees are charged as a percentage of the transaction value or as a fixed fee per trade.
For example, assume your stockbroker levies brokerage at 0.03% of the total trade value. If the value of your trade is ₹1,50,000, then you will be liable to pay ₹45 (₹1,50,000 * 0.03%). On the other hand, if your broker levies brokerage at a fixed fee of ₹20 per trade, you will have to pay the same amount of ₹20 on all of your trades, irrespective of their trade value.
2. Securities Transaction Tax (STT)
Levied by the Government of India, Securities Transaction Tax (STT) is a type of direct tax. It is levied on all buy and sell trades of all kinds of financial instruments except commodities. STT is levied as a percentage of the total trade value and varies depending on the trading segment. Here’s a table outlining the different STT rates.
| Trading Segment | Securities Transaction Tax Rate |
| Delivery | 0.1% on both the purchase and sale of assets |
| Intraday | 0.025% only on the sale of assets |
| Futures | 0.0125% on the sale of futures |
| Options | 0.0625% on the sale of options |
3. Commodity Transaction Tax (CTT)
The Commodity Transaction Tax (CTT) is also imposed by the Government of India. However, as the name implies, it is only applicable to non-agricultural commodity derivative transactions. Here’s a table outlining the different CTT rates.
| Trading Segment | Securities Transaction Tax Rate |
| Commodity Derivatives | 0.01% on the sale value of derivative contracts |
| Commodity Options | 0.05% of the premium to be paid by the options seller |
| Commodity Options (if the option is exercised) | 0.0001% of the settlement price to be paid by the buyer of the options contract |
4. SEBI Turnover Fees
The Securities and Exchange Board of India (SEBI) imposes turnover fees on both buy and sell transactions executed on stock exchanges. Turnover fees are calculated based on your traded turnover and are collected by the exchanges on behalf of SEBI.
The turnover fee for all financial securities except debt securities is 0.0001% of the total value of the purchase or sale transaction. Meanwhile, the turnover fee for debt securities is 0.000025% of the total value of the purchase or sale transaction.
5. Stamp Duty
Stamp duty is a tax imposed on various financial transactions, including the transfer of securities by state governments. The rate of stamp duty varies from one state to another and is calculated based on the transaction value.
The stamp duty is collected by the stock exchange or clearing corporation from the purchaser of the security and is remitted directly to the respective state governments. Here’s a table outlining the stamp duty rates for different trading segments.
| Trading Segment | Stamp Duty Rate |
| Delivery | 0.015% payable by the purchaser |
| Intraday | 0.003% payable by the purchaser |
| Futures | 0.002% payable by the purchaser |
| Options | 0.003% payable by the purchaser |
6. Transaction Charges
Transaction charges are fees levied by stock exchanges for facilitating trades on their platforms. These charges cover the costs associated with trade execution, clearing and settlement services provided by the exchanges. Transaction charges are typically calculated based on the traded value. Let’s look at the transaction charges levied on the purchase and sale of financial instruments by the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
| Trading Segment | Stamp Duty Rate |
| Delivery | BSE – Varies according to the stock group
NSE – 0.00325% |
| Intraday | BSE – Varies according to the stock group
NSE – 0.00325% |
| Futures | NSE – 0.00190% |
| Options | BSE – 0.005%
NSE – 0.05% |
7. Goods and Services Tax (GST)
Goods and Services Tax (GST) at the rate of 18% is applicable to brokerage fees charged by brokerage firms, transaction charges and SEBI turnover charges. As a trader, you need to account for GST when trading since it can quickly add to the overall expenses you incur.
8. Capital Gains Tax
Capital gains tax is applicable to the profit earned from the sale of capital assets. This includes financial instruments such as stocks, debt securities, derivatives and mutual funds. In India, capital gains tax rates differ based on the holding period of the asset.
If the holding period of equity and equity-related assets like mutual funds is more than 12 months, the gains are classified as Long-Term Capital Gains (LTCG) and are taxed at 10%. Fortunately, only LTCG above ₹1 lakh in a financial year is taxed.
On the other hand, if the holding period of equity and equity-related assets such as mutual funds or derivative contracts is less than 12 months, the gains are classified as Short-Term Capital Gains (STCG) and are taxed at a flat rate of 15%.
In the case of debt mutual funds, all the gains, irrespective of the holding period, are added to your total income and are taxed at the income tax slab rate applicable to you. In the case of equity or commodity derivative contracts, the gains are considered speculative income and are added to your total income and taxed according to your income tax slab rate.
Conclusion
Navigating the costs associated with trading in the Indian financial markets requires a comprehensive understanding of the various fees and taxes involved. With this, you must now be aware of the various trading expenses and should be able to plan your trades better and maximise your profits.
FAQs
Do different asset classes have different fee structures?
Yes. The fee structures may vary depending on the asset class you trade. For instance, you are liable to pay a risk management fee and Commodity Transaction Tax when you buy or sell certain commodity derivatives. These fees are not applicable to the non-commodity segment.
Are flat-rate brokerage fees beneficial?
Flat-rate brokerage fees may be beneficial if you make large trades since the brokerage is levied on a per-trade basis and not as a percentage of the total trade value. However, it may not be as beneficial if you tend to make multiple small trades frequently. As a trader, it is advisable to do extensive cost-benefit analysis before choosing your brokerage plan.
Does SEBI levy turnover charges on commodity and currency derivative transactions?
Yes. SEBI turnover charges are levied at the rate of 0.0001% of the total value of the purchase or sale transaction on all commodity and currency derivative transactions.
Where do I find the details of all of the charges incurred on a particular trade?
You can find detailed information on all of the trading-related charges you incur on a particular trade on the contract note that you receive from your stockbroker.
