Securities Transaction Tax (STT) came into function after it was presented during the Union Budget of 2004. It was imposed to eradicate evasion of tax on capital gains made through security transactions. STT is an indirect tax that is collected on every transaction associated with securities listed on recognized stock exchanges.

Securities Contracts (Regulation) Act defines the term ‘securities’ as the following:
  1. Equity shares
  2. Unlisted shares under Initial Public Offer (IPO)
  3. Stocks
  4. Bonds
  5. Debentures
  6. Other marketable securities
  7. Equity-oriented government securities  
  8. Mutual fund (MF) units of equity nature
  9. Derivatives
  10. Debt instruments that can be converted to marketable securities
  11. Rights or interest in securities
  12. Units or any other instruments received by investors for collective investment schemes

The amount of STT charged is in addition to the value of the transaction (sale or purchase). This increases the total transaction value. The STT Act administers the tax, while the STT rate is determined and occasionally changed by the Central Government. The act also provides information regarding transaction value for tax payment and specifies who bears the burden of tax under different transaction scenarios.

The collection of tax is the responsibility of the stock exchange, the merchant bank, or the designated person, depending on the transaction. The entire tax amount that has been collected is paid to the government.

STT Rate

The STT is paid either by the seller or purchaser at the time of the transaction. However, the rate is different for each security. Tax rates can differ for sale and purchase transactions. The following table explains the various rates:

S.No Type of Transaction Type of Securities STT Rate Who Will Pay STT
1 Purchase - Delivery based Equity Share 0.1% Buyer
2 Sale (Delivery based) Equity share 0.1% Seller
3 Sale (Delivery based) Equity-oriented MF unit 0.001% Seller
4 Sale (non-delivery based) Equity share or Equity-oriented MF unit 0.025% Seller
5 Intra-day transaction Equity share or Equity-oriented MF unit 0.025% Seller
6 Sale of an option Derivatives 0.017% Seller
7 Sale of an option (where the option is used) Derivatives 0.125% Buyer
8 Sale of futures Derivatives 0.01% Seller
9 Sale Exchange-traded funds (ETFs) 0.001% Seller
10 Sale Unlisted shares under IPO that are eventually listed on stock exchange 0.2% Seller


Income Tax Exemption for STT

The Income Tax Act of 1961 allows for an exemption from STT. The tax amount can be claimed if it is assumed as business expenditure. This means that capital income from securities must appear under the ‘Profits/Gains from Business and Profession’ section, implying that the taxpayer is undertaking trading of securities as part of the profession/business.

However, if share trading has been undertaken from an investment point of view by a salaried or a self-employed person, then STT charged on capital gains made from the transaction of securities is not exempted.

Click here to visit our personalized online advisor that gives you the financial expertise you need.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



Trending Articles

Popularly Searched Terms

How to Calculate Income Tax

Income Tax Benefit

Tax Saving Investment

Tax Saving Investments Under 80C

What is Tax

Latest Articles

abc-of-taxes
abc-of-taxes

Points to Note While Filling Salary Details in ITR 2

Read More
Posted on 29 May 2020
abc-of-taxes
abc-of-taxes

Want to Save Tax? Start With Understanding Your Payslip Better

Read More
Posted on 27 May 2020
abc-of-taxes
abc-of-taxes

10 Reasons Why You May Get a Notice From The Income Tax Department

Read More
Posted on 26 May 2020

Featured Articles

image abc-of-personal-money
abc-of-personal-money

Are Millennials Any Different When It Comes To Planning Financials?

Read More
Posted on 05 February 2020

Relevant Articles

image abc-of-taxes
abc-of-taxes

Points to Note While Filling Salary Details in ITR 2

Read More
Posted on 29 May 2020
image abc-of-taxes
abc-of-taxes

Want to Save Tax? Start With Understanding Your Payslip Better

Read More
Posted on 27 May 2020
image abc-of-taxes
abc-of-taxes

10 Reasons Why You May Get a Notice From The Income Tax Department

Read More
Posted on 26 May 2020