Securities Transaction Tax (STT) is a tax payable in

India India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...

on the value of

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

(excluding commodities and currency) transacted through a recognized

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...

. As of 2016, it is 0.1% for delivery based

equity trading A stock trader or equity trader or share trader, also called a stock investor, is a person or company involved in trading equity securities and attempting to profit from the purchase and sale of those securities. Stock traders may be an inve ...

. STT does not apply to off-market transactions or on

commodity In economics, a commodity is an economic goods, good, usually a resource, that specifically has full or substantial fungibility: that is, the Market (economics), market treats instances of the good as equivalent or nearly so with no regard to w ...

or currency transactions. The original tax rate was set at 0.125% for a delivery-based equity transaction and 0.025% on an INTER-day transaction. The rate was set at 0.017% on all Futures and Options transactions. STT was originally introduced in 2004 by the then

Finance Minister A ministry of finance is a ministry or other government agency in charge of government finance, fiscal policy, and financial regulation. It is headed by a finance minister, an executive or cabinet position . A ministry of finance's portfoli ...

P. Chidambaram Palaniappan Chidambaram (born 16 September 1945), better known as P. Chidambaram, is an Indian politician and lawyer who currently serves as Member of Parliament, Rajya Sabha. He served as the Chairman of the Parliamentary Standing Committee o ...

to stop tax avoidance of

capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. In South Africa, capital g ...

. The government reduced this tax in the 2013 budget after protests for years by the

broker A broker is a person or entity that arranges transactions between a buyer and a seller. This may be done for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither ...

s and the trading community. The revised STT for delivery-based equity trading is 0.1% on the turnover. For Futures, the tax has been reduced to 0.01% on the sell-side only. For Equity Options, the STT has been reduced to 0.05% on the sell side of the premium amount. The rest of the tax structure remains as is. STT is a

direct tax Although the actual definitions vary between jurisdictions, in general, a direct tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a distinction betwee ...

. The Government announced on 24 March 2023, that STT will increase by 25% effective 01 April 2023. STT on Futures (sell side) will be 0.0125% from the current 0.01% and STT on Options(Sell side) will be 0.0625% from 0.05%. The STT is levied and collected by the

union government of India The Government of India (ISO: Bhārata Sarakāra, legally the Union Government or Union of India or the Central Government) is the national authority of the Republic of India, located in South Asia, consisting of 36 states and union territo ...

. STT can be paid by the seller or the purchaser depending on the transaction. The Securities Contract (Regulation) Act, 1956 defines Securities the transaction of which are taxable under STT.

Scope of STT

According to the Securities Contracts (Regulation) Act, 1956, STT would be applicable on following securities: * Shares, bonds,

debenture In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowle ...

s, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate * Derivatives * Units or any other instrument issued by any

collective investment scheme An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These ad ...

to the investors in such schemes * Security receipt as defined in section 2(zg) of the

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (also known as the SARFAESI Act) is an Indian law. It allows banks and other financial institutions to auction residential or commercial p ...

* Government securities of equity nature * Rights or interest in securities * Equity-oriented

mutual fund A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...

s STT is not applicable for any off-market transaction.

STT Computation

As per the

Finance Act 2004 The Finance Act 2004 (c, 12) is an Act of the Parliament of the United Kingdom. It prescribes changes to Excise Duties, Value Added Tax, Income Tax, Corporation Tax, and Capital Gains Tax. It enacts the 2004 Budget speech made by Chancellor of t ...

, and modified by Finance Act 2008 (18 of 2008) STT on the transactions executed on the Exchange shall be as under: Note that

Service Tax Service tax was a tax levied by the Government of India on services provided or agreed to be provided excluding services covered under the negative list and considering the ''Place of Provision of Service Rules 2012'' and collected as per ''Poi ...

, Surcharge and Education Cess are not applicable on STT. * Value of taxable securities transaction relating to an "option in securities" shall be the

option premium In finance, a price (premium) is paid or received for purchasing or selling option (finance), options. The Option (finance)#Valuation, calculation of this premium will require sophisticated mathematics. Premium components This price can be split ...

, in case of sale of an option in securities. * Value of taxable securities transaction relating to an "option in securities" shall be the settlement price less the strike price, in case of sale of an option in securities, where option is exercised.

Income Tax and STT

Taxation of profit or loss from securities transactions depends on whether the activity of purchasing and selling of shares / derivatives is classified as investment activity or business activity. Treatment of STT also depends upon whether the

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

from these securities transactions are included under the head “Income from Capital Gains” or under the head ‘Profits and Gains of Business or Profession’.

Scenario 1: Income from
Capital Gains Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares. A ca ...

This refers to the scenario where the assessee is either Salaried or is engaged in some other business or profession and trading in securities is not the main line of business. In such cases gains or losses from securities transactions are taxed under the head “Income from Capital Gains”. Gains or losses are subject to Short Term Capital Gains (STCG) or Long Term Capital Gains (LTCG) tax depending upon the period of holding, i.e., if the holding period is less than Or equal to 12 months, gains are classified as STCG and if the holding period is more than 12 months, gains are classified as LTCG. Any equity share, which has been sold through a recognized

and on which STT has been paid and if it comes under LTCG, it'll be taxed at 10% whereas in case of STCG of such shares, the gains shall be taxed only at 15%, plus surcharge and education cess under section 111A of the Act.

Scenario 2: Profits and Gains of Business or Profession

This refers to the scenario where main business of the assessee is trading in securities. In such cases the gains or losses are classified as business income, which is taxed at the regular rate of income-tax. STT paid in respect of taxable securities transactions entered into in the course of business shall be allowed as deduction under section 36 of the Income-tax Act. Until 31 March 2008, the amount of STT paid was allowed as rebate under section 88E of the Income-tax Act. However, with effect from 1 April 2008, rebate available under section 88E has been discontinued.

References