The Securities Transaction Tax (STT) in India is a tax levied on transactions involving the purchase and sale of securities listed on stock exchanges. The introduction of STT aimed to discourage tax evasion and promote transparency in the securities market.
STT remains a significant part of India’s tax regime for financial transactions and plays a role in shaping trading strategies and investor behavior in the securities market.
Tax rates and when Securities Transaction Tax (STT) is applicable in India?
Over the years, the rates and categories of transactions subject to STT have been reviewed and adjusted.
STT applies to various transactions such as the purchase or sale of shares, equity derivatives, and mutual fund units on recognized stock exchanges.
Generally, STT applies to both delivery-based and non-delivery-based transactions, though the rates may differ.The rates for STT can vary based on the type of transaction.
Securities Transaction Tax (STT) is levied on both buy and sell of the equity delivery that are listed on stock exchanges at a rate of 0.1%. The tax is deducted at the time of buying and selling.
If the transaction is non-delivery, meaning intraday, then STT is charged at the rate of 0.025% on the sell side. Traders will not be charged STT on the buy side of the transactions.
In the case of F&O – Futures, Securities Transaction Tax (STT) is 0.02% on the sell side.
STT is applicable on the F&O – Options. STT rate for F&O – Options is 0.0125% of the intrinsic value on options that are bought and exercised and 0.1% on sell side (on premium).
Similar to equity, STT will not be charged on the buy side of futures and options.
For currency futures and options Securities Transaction Tax (STT) is not charged.
Table showing STT (Securities Transaction Tax) rates:-
| Type of security | Investment (Delivery) | Intraday Trading | Futures | Options |
| Equity | 0.1% on both buying and selling | 0.025% on sell side | 0.02% on sell side | 0.1% on sell side |
| Currency | – | – | 0 | 0 |
On commodity futures, 0.01% on the sell side (Non-Agri) is charged as CTT (Commodities Transaction Tax).
For commodity options, 0.05% as CTT (Commodities Transaction Tax) is charged on the sell side.
Who collects Securities Transaction Tax (STT) in India?
In India, the Securities Transaction Tax (STT) is collected by the stock exchanges where the transactions take place.
When a transaction (such as buying or selling securities) is executed on a recognized stock exchange, the exchange automatically deducts STT at the time of the transaction based on the applicable rates discussed above.
After deducting STT from the transaction amount, the stock exchanges are responsible for remitting the collected tax to the Government of India.
The STT amount is typically reflected in the transaction statement provided to the investor by the broker, allowing investors to see the tax incurred on their trades.
Brokers facilitate the trading process and help ensure that the STT is correctly applied and collected during transactions.
This means, the tax is deducted at the time of the transaction itself, meaning it is collected by the stock exchange and remitted to the government.
Stock exchanges are mandated to comply with the regulations governing STT, and they maintain records of the transactions for proper reporting to the government.
How does STT impact investors?
The Securities Transaction Tax (STT) impacts investors in several ways, influencing their trading strategies and overall costs.
STT adds an additional cost to buying and selling securities. Investors need to factor this into their overall transaction costs, particularly for frequent traders.
For short-term traders or day traders, the cumulative effect of STT can be significant, potentially impacting their profit margins. This may lead some investors to adjust their strategies, favoring longer-term holdings to mitigate transaction costs.
While STT is a transaction tax, it is separate from capital gains tax. Investors need to be aware of both taxes when calculating their overall tax liabilities.
Frequently Asked Questions (FAQs)
How can I avoid STT charges?
Securities Transaction Tax (STT) deducted when you buy or sell a stock from your account with a broker.
There is no way to avoid STT. It’s getting deducted based on the number of transactions and value of the stock.
To reduce STT you need to concentrate on holding investments longer so that number and value of transactions get reduced. If you do intraday transactions, you will end up paying more towards STT.
Can STT be claimed as a deduction?
If trading in the stock market is treated as a business, then the Securities Transaction Tax (STT) can be claimed as a deductible expense under Section 36 of the Income Tax Act in India. This applies to traders who are classified as having a business income from trading activities.
How is STT Calculated?
Securities Transaction Tax (STT) is calculated based on the value of the transaction. The rates can vary depending on the type of transaction.
If you take delivery of shares worth Rs. 10,00,000, the STT would be:
STT = 10,00,000 × 0.1% = Rs. 1,000
In case of intraday, for buying shares worth Rs. 10,00,000, STT will be Nil. When you sell it, STT will be Rs. 250 (i.e. 1000000*0.025%).
Is STT refundable?
No, Securities Transaction Tax (STT) is not refundable. Once STT is paid on a transaction, it cannot be claimed back or refunded, regardless of the outcome of the trade.
What type of tax is STT?
Securities Transaction Tax (STT) is a type of indirect tax levied on the purchase and sale of securities listed on recognized stock exchanges in India.
STT is applied at the time of the transaction and is calculated based on the transaction value. It’s designed to increase tax compliance and generate revenue for the government, while also being a tool to discourage excessive speculation in the stock market.
How to know whether STT is paid or not?
To check how much you paid towards Securities Transaction Tax (STT), you can check contract notes sent by the broker at the end of the day.
You will find the amount charged for STT.
You can also check your brokerage account statements. Most brokers provide detailed transaction reports that show how much STT is charged on your transaction.
Who charges Securities Transaction Tax?
Securities Transaction Tax (STT) is charged by the Government of India.
STT is collected by the stock exchanges at the time of the transaction and is then remitted to the government.
The tax is applicable to transactions involving securities that are traded on recognized stock exchanges in India
The rates for STT are specified by the government and can vary based on the type of transaction.
The stock exchanges are responsible for ensuring that STT is collected on eligible transactions.
