When STT was not introduced, people were used to evade tax by not declaring the trading transactions. Hence, in 2004, the Finance Act introduced the Securities Transaction Tax (STT). The main purpose of such tax is to prevent tax evasion on capital gains obtained from stock sales. Further, this tax ensures a fair and transparent collection of taxes from financial market transactions.
What is STT?
The Securities Transaction Tax (STT) is imposed on the buying and selling of securities traded on recognized stock exchanges in India. The Securities Transaction Act specifies the types of securities subject to this tax, which includes equity, derivatives, and units of equity mutual funds. Moreover, it also applies to unlisted shares which are initially offered to the public in an IPO and subsequently listed on a recognized stock exchange. Further, the tax rates are decided by the government, and it is payable by both the purchaser and the seller.
The following persons are liable to collect STT:
- Recognized Stock Exchange
- Prescribed Person in case of every Mutual Fund
- Lead Merchant Banker appointed by the company or business trust in case of an IPO
Responsible persons must deposit the STT collected with the central government by the 7th of the following month. However, if they fail to collect the tax, they still have to deposit the equivalent amount with the central government within the due date. Additionally, failure to collect or remit taxes will result in interest and penalties.
Securities on which STT is levied
Securities Transaction Tax is charged on the Securities that are traded on a recognized stock exchange in India. Hence, this tax does not apply to off-market transactions. Following is the list of securities on which it is levied:
- Equity Shares, Bonds, Debentures, Stocks
- Units of Equity Mutual Funds
- Exchange Traded Funds (ETFs)
- Derivatives i.e. Futures & Options
- Rights or Interest in Securities
- Securitized Debt Instruments
- Government securities of Equity nature
Securities Transaction Tax Rates
| Transaction | STT rate | Payer | Value on which STT to be paid |
| Purchase of equity share (delivery-based) or Unit of business trust | 0.1% | Buyer | Purchase Value |
| Sale of equity share (delivery-based) or Unit of business trust | 0.1% | Seller | Sales Value |
| Purchase of equity mutual fund (delivery-based) | NIL | Buyer | Not Applicable |
| Sale of equity mutual fund (delivery-based) | 0.001% | Seller | Sales Value |
| Sale of equity shares (intraday) or Equity mutual fund (without actual delivery) | 0.025% | Seller | Sales Value |
| Sale of Exchange Traded Funds (ETFs) | 0.001% | Seller | Sales Value |
| Sale of Futures | 0.0125% | Seller | Sales Value |
| Sale of Options (option not exercised) | 0.0625% | Seller | Option Premium |
| Sale of Options (option is exercised) | 0.125% | Purchaser | Settlement Price |
| Sale of unlisted equity shares or units of business trust under an IPO which are later listed on a recognized stock exchange | 0.2% | Seller | Sales Value |
Income Tax on Securities with STT paid
The income tax rate for securities on which STT is paid is lower than the income tax rate for other assets. Here are the Income Tax rates for securities on which STT is paid.
Tax on Capital Gains
| Type of Security | Period of Holding | STCG | LTCG |
| Equity shares Equity Mutual Funds Exchange Trade Funds ESOPs / RSUs | 12 Months | 15% | Upto 1 lakh – Nil Above 1 lakh – 10% |
| Foreign Shares | 24 Months | Slab Rates | 10% without indexation |
In the case of Equity Shares and Equity MF, the investor should calculate the cost of acquisition after applying the grandfathering rule to calculate the Long Term Capital Gain on shares.
Tax on Business Income
A trader having income from trading in securities and reporting such income as Business Income can claim securities transaction tax as a valid business expense. The securities transaction tax paid on trading transactions is a direct expense related to trading income. The trader can report it as an expense in the P&L Account while filing ITR-3.
Example
Case 1: The trader buys 100 shares of HDFC at INR 1000 each and sells them on the same day at INT 1006. Hence, this transaction will be treated as an Intraday transaction. Now, the applicable STT rate for intraday transactions is 0.025%. Therefore STT will be INR 1006*100*0.025% = INR 25.15.
Case 2: The trader sells 1 lot of NIFTY at INR 9000. Therefore, the total value of the transaction will be INR 6,75,000 (INR 9000*75). The STT rate applicable for future transactions is 0.0125%.
Hence. STT = INR 6,75,000*0.0125% = INR 84.375
FAQs
STT is Securities Transaction Tax and CTT is Commodity Transaction Tax. STT is levied on trading in securities such as equity delivery, equity intraday, equity F&O, ETFs, Mutual Funds, etc. CTT is levied on trading in non-agri commodity derivatives.
Yes, STT can be claimed as a business expense while filing ITR if securities transactions are reflected as business income.
STT is levied at the time of purchase as well as sales. Hence, the seller and buyer both have to pay STT while trading from the recognized stock exchange.
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