STT Charges: What are Security Transaction Tax (STT) Charges?
- 20 Sept 2024
- By: BlinkX Research Team
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
- What is SST?
- What is SST charges?
- STT levied on Equity
- STT levied on Mutual Funds
- STT levied on Options Contracts
- STT levied on other securities
- SST levied on securities
- How is STT calculated?
- List of securities liable for STT
- 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
| Rate | Who is liable to pay | Levied on | |
| Purchase of equity shares on a delivery basis | 0.1% | Purchaser | Purchase price |
| Sale of equity shares on a delivery basis | 0.1% | Seller | Sale Price |
STT levied on Mutual Funds
| Rate | Who is liable to pay | Levied on | |
| Sale of mutual fund units | 0.001% | Seller | Sale price |
| Sale of equity shares or mutual fund units on a non-delivery basis | 0.025% | Seller | Volume-weighted average price of securities |
STT levied on Options Contracts
| Rate | Who is liable to pay | Levied on | |
| Sale of options contracts | 0.1% | Seller | Options premium |
| Sale of options contracts where the options are exercised | 0.125% | Purchaser | Contract settlement price |
STT levied on other securities
| Rate | Who is liable to pay | Levied on | |
| Sale of futures contracts | 0.02% | Seller | Futures trading price |
| Sale of ETF units or equity-oriented mutual fund units | 0.001% | Seller | Sale 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 exchange | 0.2% | Seller | Sale price of shares |
SST levied on securities
| Rate | Who is liable to pay | |
| Sale of an option in securities | 0.0625% | Seller |
| Sale of an option in securities, where the option is exercised | 0.125% | 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 Transaction | Liable for STT | Deduction |
| Business Income | Any 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/Trading | You 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.
