Securities Contracts (Regulation) Act defines the term ‘securities’ as the following:
- Equity shares
- Unlisted shares under Initial Public Offer (IPO)
- Other marketable securities
- Equity-oriented government securities
- Mutual fund (MF) units of equity nature
- Debt instruments that can be converted to marketable securities
- Rights or interest in securities
- 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 RateThe 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 STTThe 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.
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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.
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