What is the STT (Securities Transaction Tax) all about?

Securities Transaction Tax (STT) is a type of direct tax that is payable on the total value of securities and stock exchanges in India. Up to 2016, it constituted 0.1% of the delivery based equity trading. These taxes do not include the transactions that are made on a non recognized stock exchange. Also, commodity and currency transactions are barred from STT.

Securities Transaction Tax came up in the year 2004, introduced by the then Finance Minister, P. Chidambaram. This was introduced to prevent tax evading. Later, the STT was revised to establish taxes constituting 0.1% on the total turnover. The rates of STT are different based on whether the equity shares have been bought or purchased. With the new amendment coming up, the STT has been reduced to 0.01% on the sell - side only, for Futures, while reduced to 0.05% only, for the Equity options. While for rest of the tax structures, they remain constant.

The STT is levied by the Union Government of India from the dealers. All the rates are decided by the Central Government itself. Surprisingly for the Securities Transaction Tax, Securities Regulation Contract Act was established long before in the year 1956 to provide provision to the securities taxes under this. The provisions for collection of STT are same as those concerning the TCS and the TDS.

Generally, the STT is calculated by a recognized stock exchange or by the prescribed person in case of Mutual Funds. These are payable to the Government on or before 7th day of the following month. In case the prescribed person fails to collect the taxes, the taxpayers should still pay the taxes equivalent to the calculated taxes within the 7th day of the following month. Failure to do so may result in levying of heavy interests and even penalties.


What are the Scopes in 'Securities' that become liable for the STT?

The term ‘Securities’ as per the definition in the Securities Contract (Regulation) Act include those assets that are liable for Securities Transaction Tax. These constitute the following:

  • Bonds, stock shares, scraps, debenture stock, or any other securities that can be marketed or are of similar nature to this.
  • Any Derivatives or units that has been obtained by the collective investment schemes.
  • Any securities under the Government that is of equity nature.
  • Units of the mutual funds that are equity oriented.
  • Securities that contain personal rights or interests.
  • The debt instruments that are under security

So, we see that 'securities' is a wide term when it comes to Securities Transaction Tax (STT). The STT includes all of the above securities that are recognized by the stock exchange when it comes to levying of taxes.


How is the Securities Transaction Tax levied?

The Securities Transaction Taxes are levied at a specific interest for each section according to the Security Contract Act by certain people, a buyer or a seller, on a particular value. These taxes are not random but actually calculated carefully.

Securities that comes under the Securities Contract Act Rate counted on each security  The taxpayer who should pay this STT The total value on which the Securities Transaction Tax is paid 
Purchase of Equity shares that are delivery based Charged 0.1%  Paid by the buyer On the total price of the equity share at which it was purchased 
Sale of Equity shares that are delivery based Charged 0.1% Paid by the seller  On the total price of the equity share for which it was sold 
Sale of a unit of oriented mutual funds that are delivery based Charged 0.01% Paid by the seller On the total price of the equity share for which each unit is sold
Sale of an option in security derivatives Charged 0.017% Paid by the seller On the total value of option premium 
Sale of an option in security derivatives where the option is exercised Charged 0.125% Paid by the buyer On the total value of settlement price
Sale of futures in option derivatives Charged 0.01% Paid by the seller  On the total value at which the futures are traded
Sale of equity funds or the oriented mutual fund in recognised stock exchange which are not traded by actual delivery or by transfer and intra day shares Charged 0.025% Paid by the seller  On the total amount at which the equity share or equity unit is sold
Sale of a unit through Exchange traded funds (ETFs) when equity funds are changed into mutual funds Charged 0.001% Paid by the seller The total amount at which the unit is sold
Sale of unlisted shares to public and have been included in IPO to be listed in stock exchanges Charged 0.2% Paid by the seller The total amount at which the shares are sold
Purchase of unit equity placed under mutual funds Nil Paid by the buyer Not Available 

For a more detailed information regarding how the taxes are calculated on equity funds, you can refer to Rule 3 of the STT RULES that was established in the year 2004.


How are the Securities Transaction Taxes Counted on Physical Delivery of Derivatives?

On the 27th day of August in 2018, the CBDT clarified regarding certain rules for the Physical Delivery of Derivatives. This derivative contract is generally paid in cash for those stocks which have not been physically delivered.


Conclusion

In the words of Chidambaram, “STT is a neat, efficient, and easy-to-administer tax and it has the great advantage of virtually eliminating tax avoidance.”

So the next time, your broker or AMC sends you your transaction bill or statement, remember that the extra bit you are paying over and above your transaction is nothing but the tax that has been levied.

Whether it is purchase and sale of shares or mutual fund units, STT will stay and cannot be avoided.


FAQ’s on Section 234F of Income Tax

Q- What is STT Del?

STT (Securities Transaction Tax) ... Different STT rates are applicable for Equity (cash) and Futures and Options (F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT (Commodities Transaction Tax) is levied


Q- What is STT in mutual fund?

Security Transaction Tax (STT) is a direct tax which is levied on buying/selling of financial instruments like equity, debentures, bonds, derivatives, mutual funds. In mutual funds, the STT is levied only on sale of MF units in equity and balanced funds, applicable on both open ended and close ended schemes.


Q- What is STT jobbing?

STT is levied on purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives, or equity-oriented mutual funds units, Securities transaction tax (STT) was introduced in India a few years ago to curb tax avoidance on capital gains.


Q- Is securities transaction tax a direct tax?

Securities Transaction Tax (STT) is a type of financial transaction tax levied in India on transactions done on the domestic stock exchanges. The rates of STT are prescribed by the Central / Union Government through its Budget from time to time. In tax parlance, this is categorised as a direct tax.


Q- What is STT RND?

STT (Securities Transaction Tax) ... Different STT rates are applicable for Equity (cash) and Futures and Options (F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT (Commodities Transaction Tax) is levied.


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CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.