March 2010

Understand charges other than Brokerage when Buying and Selling Shares

Understand charges ,other than Brokerage ,when Buying and Selling Shares,STT, Service Tax, Education Cess, Exchange Levy, Stamp Duty, DIS Charges, Interest ChargesMost of you must have bought and sold shares through intermediaries. Most of you are aware of the brokerage costs. However there are various other charges levied by Exchange. These charges are on top of brokerage costs and they kick in whenever you buy or sell shares or trade in Futures and options.

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It makes sense to be aware of these charges, understand the calculation of these charges and how it impacts the cost of purchase.

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Whenever you buy or sell shares, make sure you check the contract note. The contract note contains details of the purchase or sell you have made with the intermediary. Ensure that the quantities and the shares are correctly mentioned. You will see the following charges in addition to Brokerage charges – Securities Transaction Tax (STT), Stamp Duty, Exchange Levy, Service Tax, Education Cess etc.

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The below mentioned table provides a quick overview of the various charges involved when buying or selling shares or trading in Futures and options.


Cash Market Delivery

Cash Market Intra-day

Derivatives Futures

Derivatives Options

Brokerage *

* Approx costs taken – pls check with your intermediary.

.50%

.05%

.05%

Rs 100 per lot

Service Tax on Brokerage

10% of Brokerage

Education Cess on Service Tax

2% of Service Tax + Secondary and Higher Education Cess 1% of Service Tax

Securities Transactions Tax (STT)

(Charged on Volume)

0.125% of Volume

0.025% of Volume on
SELL transactions

0.017% of Volume on
SELL transactions

0.017% for Option Premium * Qty on SELL transactions and 0.125% of Settlement Value where Option is exercised

Exchange Levy

(Charged on Volume)

0.0034% of Volume in BSE and 0.0035% of Volume in NSE

0.0034% of Volume in BSE and 0.0035% of Volume in NSE

0.002% of Volume

0.05% of Premium * Qty

Stamp Duty

(Charged on Volume)

0.01% of Volume

0.002%of Volume

0.002% of Volume and closeout

0.002% of Premium and Notional value for Exercise / Assignment

Miscellaneous Charges (* Assumptions) — can Vary.

Pls check with your Intermediary

Physical Contract Note charges

Rs 20 /- per contract note. In case of digital contract notes , charges still apply, albeit they are less say Rs 10/- per contract note.

Delivery Instruction Slip Charges

Rs 10/- per transaction

Cheque Bouncing charges/ Cancellation Charges

Rs 300/-

Interest on Delayed Payments

20% pa

There are some other charges involved like SMS alert facility monthly charges, Processing Charges, Minimum Brokerage per day etc. which you should be aware of.

Here is a quick example to understand the impact of other charges.

Let us take the case of Cash Market Delivery Shares purchase of Reliance shares

BUY 100 QTY RELIANCE SHARES @ 1000/- per share.

Volume = Qty * Price = Rs 1,00,000/-

Brokerage = (Using the above assumption of .50%)

= .50% of Volume = =(.05/100) * 100000

= Rs 500/-

_______________________Other Charges__________________


Service Tax = 10% of Brokerage = Rs 50/-

Education Cess = (2 % + 1 %) of Service Tax = 3 % of Rs 50/- = Rs 1.5/-

STT = .125% of Volume = Rs 125/-

Stamp Duty = .01% on Volume = Rs 10/-

Exchange Levy = .0035% of Volume (NSE) = Rs 3.5/-


Total Cost= Rs 690.5/- This is Rs 190.5/- more than only the brokerage cost.


The Securities Transaction Tax (STT) is a second biggest cost after the brokerage. STT was introduced by Mr P Chidambaram in the union budget of 2004-2005. Securities Transaction Tax is applicable on purchase or sale of equity shares, derivatives, equity-oriented funds and equity-oriented mutual funds.

It makes sense to be aware of these costs and use them in your calculations.

You can find more information on some of the terminologies related to Demat at  http://www.sebi.gov.in/faq/faqdemat.html