Securities Transaction Tax (STT)
STT: A Quick Guide to Securities Transaction Tax
In this post, we will discuss Securities Transaction Tax (STT) – a tax you pay on buying and selling shares and other securities through recognised stock exchanges in India. Let’s explore each section in more detail:
- What is Securities Transaction Tax (STT)?
- Features of Securities Transaction Tax
- Securities on which STT is Applicable
- Securities Transaction Tax Rate in India
- STT for various types of orders are:
- Securities Transaction Tax and Income Tax
- STT on Physical Delivery of Derivatives
- When Is Securities Transaction Tax Levied?
- Example of STT
- FAQs
What is Securities Transaction Tax (STT)?
Securities Transaction Tax (STT) is a tax you pay when you buy or sell shares and other securities on recognised stock exchanges in India. It mainly applies to equity shares, futures, and options. The tax rate is different for different types of trades.
STT is a type of direct tax collected by the central government. One key thing to note is that STT is only charged on transactions made through official stock exchanges. If you do off-market share transfers (like between friends or family, outside the exchange), STT is not applicable.
Features of Securities Transaction Tax
STT is a type of direct tax that’s easy to calculate and apply. Here are a few key things you should know:
- STT is charged on all sell trades done in options and futures.
- While calculating STT:
- Futures are valued at the actual trade price.
- Options are valued based on the premium amount.
- A clearing member has to pay the total STT amount on behalf of all the trading members working under them.
Securities on which STT is Applicable
The term ‘securities’ isn’t directly defined in the STT (Securities Transaction Tax) Act. But, if a term isn’t defined in the STT Act, we can take its meaning from the Securities Contracts (Regulation) Act, 1956 or the Income-tax Act, 1961.
As per the Securities Contracts (Regulation) Act, ‘securities’ include:
- Shares, scrips, stocks, bonds, debentures, debenture stock, or other similar marketable securities of any company or body corporate
- Derivatives
- Units or any other instrument issued by a collective investment scheme
- Government securities that have equity features
- Equity-oriented mutual fund units
- Any rights or interest in the above securities
- Securitised debt instruments
In short, all these are treated as ‘securities’ and if they’re traded through a recognised stock exchange, STT will apply. But, if the trade happens off-market (not through the exchange), then STT won’t be charged.
Securities Transaction Tax Rate in India
|
Type of Transaction |
STT Rate |
Who Pays |
STT Charged On |
|
Buying equity shares (delivery-based) |
0.1% |
Buyer |
Purchase price |
|
Selling equity shares (delivery-based) |
0.1% |
Seller |
Sale price |
|
Selling mutual fund units (delivery-based, equity-oriented) |
0.001% |
Seller |
Sale price |
|
Selling equity shares or equity MF units without delivery (including intraday) |
0.025% |
Seller |
Sale price |
|
Selling options (derivatives) |
0.0625% |
Seller |
Premium amount |
|
Exercising options (when buyer uses the option) |
0.1% |
Buyer |
Settlement price |
|
Selling futures (derivatives) |
0.02%/p> |
Seller |
Trade price |
|
Selling units of equity-oriented fund to Mutual Fund (like ETFs) |
0.001% |
Seller |
Sale price |
|
Selling unlisted shares in IPO (Offer for Sale) later listed |
0.2% |
Seller |
Sale price |
|
Buying mutual fund units (equity-oriented) |
NIL |
Buyer |
Not applicable |
STT for various types of orders are:
|
Order Type |
New Charges |
Old Charges |
|---|---|---|
|
Equity Intraday |
0.025% (₹25 per lakh) – Only on sell side |
0.025% (₹25 per lakh) – Only on sell side |
|
Equity Delivery |
0.1% (₹100 per lakh) – On both buy and sell side |
0.1% (₹100 per lakh) – On both buy and sell side |
|
Options |
0.125% on intrinsic value if bought and exercised 0.1% on premium if shorted |
0.125% on intrinsic value if bought and exercised 0.0625% on premium if shorted |
|
Futures |
0.02% (₹20 per lakh) – On sell side |
0.0125% (₹12.5 per lakh) – On sell side |
Note for delivery trades:
Since STT applies on both buy and sell sides, you’ll need to work out the average price.
Here’s the easy formula:
Average price = (Buy Qty × Buy Price + Sell Qty × Sell Price) ÷ (Buy Qty + Sell Qty)
In short:
Total buying cost + Total selling amount divided by Total quantity traded.
Securities Transaction Tax and Income Tax
The tax you pay on money earned from the share market mainly depends on why you are trading; whether it’s for investment or as a business/profession.
1. Income from Capital Gains
If you are a salaried person or self-employed and you invest in shares just to grow your money (not as your main work), then your earnings from it are taxed under capital gains.
- If you sell the shares within 1 year, it’s called short-term capital gain and is taxed at 15%.br />
- If you hold the shares for more than 1 year, it’s long-term capital gain, and gains above ₹1 lakh are taxed at 10%.
2. Income from Share Trading as a Profession
If trading in shares is your main work or business, your income is treated as business income.
- Profits are taxed as per the regular income tax slabs.
- You can also claim the Securities Transaction Tax (STT) paid as a deduction under Section 36 of the Income Tax Act.
STT on Physical Delivery of Derivatives
When F&O (Futures and Options) contracts are settled through actual delivery, STT (Securities Transaction Tax) is charged on the trader. This happens only when the contract ends in physical delivery.
The CBDT has clarified that such physically settled derivative trades will attract an STT of 0.1%, just like how it’s charged on regular equity share deliveries.<
When Is Securities Transaction Tax Levied?
STT is a small tax we pay during certain share market transactions done through recognised stock exchanges. Here are the main cases:
- When you buy or sell equity shares and actually take or give delivery, STT is charged on both sides – buying and selling.
- In intraday trades (buy and sell on the same day, no delivery), STT is charged only on the selling side.
- For futures contracts, STT is charged only when you sell.
- In options trading, STT is charged only when the option is exercised, and only on the seller.
- When you sell units of equity mutual funds through the exchange, STT is charged.
Example of STT
Suppose a trader buys 500 shares at ₹20 each. So the total investment is ₹10,000.
He sells these shares on the same day at ₹30 each. Since it’s an intraday trade, STT (Securities Transaction Tax) of 0.025% applies on the sell value.
Sell value = ₹30 × 500 = ₹15,000
STT = 0.025% of ₹15,000 = ₹3.75
Now, let’s take futures. STT on futures is 0.01% and it’s charged only on the sell side.
Suppose a trader buys 5 lots of Nifty futures at ₹5000 and sells at ₹5010.
>Lot size of Nifty = 50
Sell value = ₹5010 × 50 × 5 = ₹12,52,500
STT = 0.01% of ₹12,52,500 = ₹125.25
With that, we conclude this post. Please leave any questions or comments in the box below, and we are more than happy to answer them.
FAQs
Q. What is Securities Transaction Tax (STT)?
Ans: STT is a small tax you pay when you buy or sell shares or other securities on the stock market. It gets added automatically during the trade.
Q. How is STT calculated?
Ans: STT is charged as a fixed percentage of your trade value. For example, if you buy or sell shares, you pay 0.1% as STT. The rate is different for shares and derivatives.
Q. Can we avoid paying STT?
Ans: No, STT is compulsory. But if you have paid it, you can show it while filing income tax to adjust against your capital gains.
Q. Is STT refundable?
Ans: No, once paid, STT is not refundable even if you made a loss in the trade. It is a tax collected on every transaction.
