In a significant move aimed at mitigating the impact of a sharp increase in the securities transaction tax (STT) for the futures and options (F&O) market, the Indian government has introduced a proposal to alter the application of goods and services tax (GST) on intermediary services, including stockbroking. This development, part of the Finance Bill 2026, seeks to provide relief to domestic financial service providers engaged in cross-border transactions.
GST Amendment for Intermediary Services
The Finance Bill 2026 proposes the omission of clause (b) of sub-section (8) of Section 13 of the Integrated Goods and Services Tax (IGST) Act, 2017. According to the Budget memorandum, this change is intended to clarify that the place of supply for 'intermediary services' will now be determined under the default provision outlined in section 13(2) of the IGST Act.
Impact on Stockbrokers and FPIs
Previously, Indian intermediaries such as stockbrokers serving overseas clients, including foreign portfolio investors (FPIs), were subject to an 18% GST liability on cross-border transactions. This was because the law treated the place of supply as the location of the service provider, leading to potential tax burdens and ambiguities.
With the removal of this provision, the place of supply will shift to the location of the client. Consequently, for Indian stockbrokers providing services to FPIs based abroad, the place of supply will now be considered outside India. This reclassification allows such services to qualify as exports, making them zero-rated under GST—a move expected to reduce service costs for Indian broking firms catering to FPIs.
The only condition for this benefit is that payments must be received in convertible foreign exchange or in permitted Indian rupees, which are treated as deemed exports. This adjustment aligns with the recommendations of the 56th GST Council and aims to enhance the competitiveness of Indian financial services in the global market.
Expert Opinion on the GST Change
Charanya Lakshmikumaran, Executive Partner at Lakshmikumaran & Sridharan Attorneys, commented on the proposal, stating, "In a welcome move aligning with the 56th GST Council's recommendation, the Finance Bill, 2026 proposes the omission of Section 13(8)(b) of the IGST Act, allowing intermediary service providers to foreign entities to qualify as 'export of service'. This amendment shifts the place of supply to the recipient's location, thereby removing the ambiguity and GST burden."
STT Hike in the Derivatives Market
Alongside the GST relief, the government announced a hike in the securities transaction tax (STT) for the Indian derivatives market. This decision triggered a sharp selloff on Dalal Street, marking the worst decline on a Budget day in six years, with Sensex and Nifty both falling over 2%.
Details of the STT Increase
Finance Minister Nirmala Sitharaman explained that the STT hike is intended to discourage small investors from speculative trading in derivatives. In her Budget speech, she outlined the following changes:
- STT on futures contracts will be raised to 0.05% from the current rate of 0.02%.
- STT on options premiums is proposed to increase to 0.15% from the present rate of 0.1%.
- STT on the exercise of options is also set to rise to 0.15% from the existing rate of 0.125%.
Market Reaction and Analyst Views
Despite the immediate market downturn, analysts anticipate a limited long-term impact from the STT hike. Amit Majumdar, Group Chief Strategy Officer at Angel One, noted, "India’s retail participation and broader financialisation are still in the early stages. Marginal changes in transaction costs do not alter the long-term behaviour of participants in the capital markets."
This perspective suggests that while the STT increase may dampen short-term trading activity, it is unlikely to derail the broader growth trajectory of India's financial markets.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
