Securities Transaction Tax (STT) is a tax levied on transactions of securities such as shares, derivatives, and equity-oriented mutual funds traded on recognised stock exchanges in India. Introduced in 2004, STT is a critical component of stock market operations, ensuring transparency and regulatory compliance in securities trading.
This tax is deducted automatically at the time of transactions, making it a seamless but important consideration for investors. Whether you are buying shares, trading futures, or redeeming mutual fund units, understanding STT is vital for managing your investments effectively.
Key Features of STT
- Automated Deduction: STT is deducted by brokers during transactions, eliminating manual intervention for investors.
- Applicability: STT is levied only on securities traded through recognised stock exchanges, such as equity shares, equity derivatives, and equity-oriented mutual funds.
- Non-Deductible: STT is not deductible while calculating taxable income, but it impacts the net returns of investments.
- Tax Variations: The rate of STT depends on the type of security and the nature of the transaction (buying or selling).
Securities on Which STT is Applicable
Here’s an overview of securities subject to STT:
| Type of Security | Applicability of STT |
| Equity Shares | STT is applicable on both purchase and sale transactions on recognised stock exchanges. |
| Equity Derivatives (Futures) | STT is levied on the sale of futures contracts. |
| Equity Derivatives (Options) | STT applies to the premium on sale of options, and on settlement price if the option is exercised. |
| Equity-Oriented Mutual Funds | STT is applicable on the sale of units traded on recognised stock exchanges. |
| Other Securities (e.g., Bonds) | Generally, STT is not applicable to bonds, government securities, or non-equity-oriented investments. |
Levy of STT in India
STT rates differ based on the type of transaction. Here’s a detailed breakdown:
| Transaction Type | Rate of STT | Who Pays the STT? | Applicable Value |
| Equity (Delivery-Based Purchase) | 0.1% | Purchaser | Purchase price of shares. |
| Equity (Delivery-Based Sale) | 0.1% | Seller | Sale price of shares. |
| Equity-Oriented Mutual Funds (Sale) | 0.001% | Seller | Sale price of mutual fund units. |
| Equity Derivatives (Futures Sale) | 0.01% | Seller | Sale price of futures. |
| Equity Derivatives (Options Sale) | 0.017% | Seller | Option premium value. |
| Equity Derivatives (Options Exercise) | 0.125% | Purchaser | Settlement price of the exercised option. |
| Unlisted Shares (IPO Listing) | 0.2% | Seller | Sale price of shares during listing on recognised stock exchanges. |
| Purchase of Equity-Oriented Mutual Fund Units | NIL | Purchaser | Not applicable. |
Note: For detailed valuation rules, refer to Rule 3 of the Securities Transaction Tax Rules, 2004.
Securities Transaction Tax and Income Tax
The relationship between STT and income tax has significant implications for investors:
- Non-Deductible Nature: STT cannot be deducted from taxable income under the Income Tax Act. However, it influences capital gains tax calculations.
- Impact on Capital Gains:
- Short-Term Capital Gains (STCG): Gains from securities where STT is paid are taxed at 15% under Section 111A.
- Long-Term Capital Gains (LTCG): Gains from equity shares and equity-oriented mutual funds where STT is paid enjoy a tax exemption limit of ₹1,00,000. Gains exceeding this limit are taxed at 10% without indexation benefits.
- Exemption for Certain Transactions: Transactions carried out on International Financial Service Centres (IFSC) are eligible for concessional tax rates even if STT is not paid.
STT Example
Let’s illustrate how STT is calculated for a typical equity share transaction:
| Details | Calculation |
| Purchase of Shares | – 1000 shares of XYZ Ltd. at ₹200 each. |
| Total Purchase Value | ₹2,00,000. |
| STT on Purchase (Rate: 0.1%) | ₹200 (0.1% of ₹2,00,000). |
| Sale of Shares | – Sold 1000 shares at ₹250 each. |
| Total Sale Value | ₹2,50,000. |
| STT on Sale (Rate: 0.1%) | ₹250 (0.1% of ₹2,50,000). |
| Total STT Paid | ₹450 (₹200 + ₹250). |
Conclusion
Securities Transaction Tax (STT) is an integral part of the Indian stock market. It impacts the overall returns from your investments, making it essential to understand its applicability and implications. While STT is a relatively small percentage, it plays a crucial role in taxation and financial planning.
FAQs
1. What is Securities Transaction Tax (STT)?
STT is a direct tax levied on the purchase and sale of securities like shares, equity derivatives, and mutual funds traded on recognised stock exchanges in India.
2. On what types of securities is STT applicable?
STT applies to equity shares, equity-oriented mutual funds, and equity derivatives (like futures and options). It does not apply to bonds, government securities, or off-market transactions.
3. What is the rate of STT?
STT rates vary depending on the security type and transaction nature. For example, delivery-based equity trades have a rate of 0.1%, while the sale of equity-oriented mutual funds is taxed at 0.001%.
4. How is STT paid?
STT is automatically deducted by brokers at the time of the transaction and is included in the contract notes provided to investors.
5. Can I claim STT as a deduction in my income tax return?
No, STT is not deductible under the Income Tax Act. However, paying STT qualifies transactions for concessional tax rates on capital gains.
6. Does STT apply to mutual funds?
Yes, STT applies to the sale of units of equity-oriented mutual funds if traded on recognised stock exchanges.
7. What happens if I trade in unlisted securities?
STT does not apply to unlisted securities unless specified otherwise, such as shares sold during an IPO listing on stock exchanges.
8. How does STT affect my returns?
STT reduces the net returns on transactions as it is an additional cost. It’s essential to consider STT while calculating the profitability of trades.
9. Does STT apply to transactions on IFSCs?
For transactions carried out on International Financial Service Centres (IFSCs), STT is generally exempt, but gains may still qualify for concessional tax treatment.
10. How is STT different from capital gains tax?
STT is a transaction tax paid at the time of purchase or sale, while capital gains tax is levied on the profits earned from the sale of securities, depending on the holding period.
