STT Charges: What are Security Transaction Tax (STT) Charges?

STT Charges: What are Security Transaction Tax (STT) Charges?

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In 2004, Former Finance Minister P. Chidambaram introduced the Securities Transaction Tax (STT) to mitigate tax evasion on the gains made by selling or buying securities such as mutual funds, stocks, and derivatives. It is a direct tax levied directly on the transaction value of securities. This blog focuses on what is SST charges, how is SST calculated, security transaction tax rate, and more. Keep reading! 

What is SST?

Securities transaction tax or STT is a tax levied on the sale or purchase of securities such as equity, futures, options, etc. listed on a recognized stock exchange by the government of India. It is a percentage and is calculated on the total trade value. The STT rate ranges from 0.001% to 0.2% of the total trade value depending on the type of securities and whether it is sold or purchased.

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Table of Content

  1. What is SST?
  2. What is SST charges?
  3. STT levied on Equity
  4. STT levied on Mutual Funds
  5. STT levied on Options Contracts
  6. STT levied on other securities
  7. SST levied on securities
  8. How is STT calculated?
  9. List of securities liable for STT
  10. How is STT charged?

What is SST charges?

SST charges were imposed with the primary objective of making the tax collection process efficient and avoiding any tax evasion. The tax is automatically deducted on your behalf by the broker when you purchase or sell a security through a stock exchange. STT is deducted regardless of the profitable or not, unlike capital gain tax.

STT levied on Equity

 RateWho is liable to payLevied on
Purchase of equity shares on a delivery basis0.1%PurchaserPurchase price
Sale of equity shares on a delivery basis0.1%SellerSale Price

STT levied on Mutual Funds

 RateWho is liable to payLevied on
Sale of mutual fund units0.001%SellerSale price
Sale of equity shares or mutual fund units on a non-delivery basis0.025%SellerVolume-weighted average price of securities

STT levied on Options Contracts

 RateWho is liable to payLevied on
Sale of options contracts0.1%SellerOptions premium
Sale of options contracts where the options are exercised0.125%PurchaserContract settlement price

STT levied on other securities

 RateWho is liable to payLevied on
Sale of futures contracts0.02%SellerFutures trading price
Sale of ETF units or equity-oriented mutual fund units0.001%SellerSale price of units
Sale of unlisted shares to the public as part of an IPO through an Offer for Sale (OFS), where the shares are subsequently listed on a recognised stock exchange0.2%SellerSale price of shares

SST levied on securities

 RateWho is liable to pay
Sale of an option in securities0.0625%Seller
Sale of an option in securities, where the option is exercised0.125%Purchaser
Sale of futures in securities

0.0125%

Seller

How is STT calculated?

A dealer purchases shares of 10,000 worth ₹20,000 at ₹10 per share and sells them at ₹20 per share. If the trader sells the shares on the same day, the intraday STT rate of 0.025% will apply.

STT = 0.025%*20*20,000 = ₹100

List of securities liable for STT

Below is the list of securities that are liable to be taxed under The Securities Transaction Tax (STT):

  • Equity Mutual Fund units
  • Securitised debt instruments
  • Derivative contracts such as futures and options
  • Bonds and debentures of a registered company or a corporate body
  • Scrips or other marketable securities of a registered company or a body corporate
  • Financial instruments or units issued to investors as part of a collective investment scheme
  • Securitised debt instruments
  • Equity shares of a registered company or a corporate body
  • Equity government securities
  • Rights or interest in securities

Please note that the above-mentioned securities are taxed under the securities transaction tax (STT) only if they are traded on a stock exchange. STT will not be applicable for any manual transfers or off-market purchase or sale transactions.

How is STT charged?

STT is charged on any transaction involving securities listed on stock exchanges. However, depending on the nature of the transaction it is treated differently. Depending on whether the transaction is performed for trading/investing or to earn business income, it is charged.

Nature of TransactionLiable for STTDeduction
Business IncomeAny entity engaged in securities transactions to generate business income is liable to pay STT.You can claim a deduction of the STT as a business expense under Section 36 of the Income Tax Act.
Income from Investment/TradingYou have to pay STT, if you engage in securities transactions for financial gains whether individual salaried or self-employed. Based on the duration of holding, it can be categorized under short-term capital gain or long-term capital gains.  NA

Conclusion
The Securities Transaction Tax (STT) is levied on the sell and buy transaction of different securities such as equity, futures, options, etc. While trading you must keep in mind that if your trade value is greater, you have to pay more STT especially if you are taking delivery of equity shares. Being aware of applicable tax rates and the nature of the transaction helps you understand better and calculate your STT rate complying with all the regulations.

Faqs on STT Charges

You cannot avoid The Securities Transaction Tax (STT) charges. It is deduced at the source to reduce any kind of tax evasion.

Yes, STT is levied both on the buying and selling of securities. However, the tax rate depends on whether you are buying or selling any type of security.

No individual broker decides the STT. It is levied by the finance minister of the Government of India. There are different charges as per the type of securities and whether it is for buying or selling of securities.

No, STT is not refundable. You have to pay STT charges as per the STT tax rates.

While filing returns, you can claim the total STT paid as a deduction for business income under Section 36 of the Income Tax Act. It is considered a business expense and is liable for deduction.

Depending upon the transaction, STT is paid by the seller or the purchaser. STT is collected by the Union Government of India.