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

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.

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. STT on Physical Delivery of Derivatives
11. 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

STT levied on Mutual Funds

STT levied on Options Contracts

STT levied on other securities

SST levied on securities

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.

STT on Physical Delivery of Derivatives

The regulatory Authority - The Central Board of Direct Taxes has declared that derivatives settled physically will incur a Securities Transaction Tax (STT) of 0.1%. 

• Imposed – Levy on traders 
• When – On successful completion of derivatives deliveries. 
• Imposed on - Transactions involving equity shares on par and are subjected to identical tax rates. 

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.

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.