Question about physical settlement of Stock options and tax implication

F&O
1

Hi, newbie to options hence this question. Apologies in case this has been answered before

Now that SEBI has mandated physical settlement in stock options I had a few questions

  1. Assume Reliance spot price is 2000. I sell a covered call at 2400 and receive a premium of Rs.50. On expiry Reliance is at 2200. i.e. my strike is OTM. So the Rs.50 gets credited to my account automatically and the shares remain in my demat . Right?

What tax would I pay on expiry?

  1. Assume my call becomes in the money and Reliance on expiry goes up to 2600 and premium goes up to Rs150
    So in this situation I’ll have to pay Rs.100 for the premium loss and the broker will sell my shares at 2400 and credit those proceeds to my account. All this would be done automatically and I don’t have to do anything right? Like they will initiate a buy to close my sold call option correct?

Also what tax implication would I have? STT etc.? Any hidden facets I need to know tax wise? like for example, I think a few years ago if you were long and didn’t close your position before expiry then the STT was charged on the entire contract value and not the premium which meant a big loss. Any such “gotchas” I am missing?

  1. If I close my position manually just before expiry what tax implication would I have?

Thanks.

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2

Right.

All will be done automatically, you don’t have to do anything. Also, upon expiry your position is excercised by the Exchange, not the broker.

You have already paid STT when you Shorted the options, so there will be no additional charges.

Also, when your position is physically settled there is brokerage of 0.25% charged on physically settled value.

Same brokerage and charges as when you normally take and close position, nothing additional.

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