Securities Transaction Tax (STT)
Securities Transaction Tax (STT)
Securities Transaction Tax is a type of direct tax payable in India on the value of taxable securities transacted through a recognized stock exchange. Securities transaction tax (most commonly known as STT) was introduced in the Budget of the year 2004 and was made applicable from October 2004. The main objective behind the implementation of STT is to avoid tax evasion. STT is a turnover tax where the investor is liable to pay specified tax on the total consideration paid or received in a share transaction. Stock, options, futures, mutual funds and exchange-traded funds come under the purview of STT.
Tax on Securities
Securities Transaction Tax is applicable on following securities, as per criteria set by Securities Contracts (Regulation) Act:
- Shares, bonds, debentures, debenture stock or other marketable securities, scrips, stocks of a like nature in or of any incorporated company or another body corporate
- Derivatives
- Units or any other instrument issued by any collective investment scheme to the investors in such schemes
- Security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- Government securities of equity nature
- Rights or interest in securities
- Equity oriented units of mutual funds
- Securitized debt instruments
In the case of off-market transactions, Securities Transaction Tax is not applicable.
Securities Transaction Tax Rate
| Particulars | STT Rate | Value on Which STT is Paid |
| Purchaser or seller of equity shares on purchase or sale of equity share through a recognized stock exchange. | 0.1% | Value of buy or sale of the security |
| Purchaser of an equity-oriented unit of mutual fund | 0.1% | Buying value of equity-oriented unit of mutual fund |
| Seller of an equity-oriented unit of mutual fund | 0.025% | Sale value of an equity-oriented unit of mutual fund |
| Option contract (seller) – On the sale of options contracts in securities through a recognized stock exchange | 0.017% | Value of option premium received on sale of an option contract in securities |
| Option contract (seller) – On the sale of options contract which is exercised by a buyer of option in securities through a recognized stock exchange | 0.125% | Value of settlement price received on sale of options contract in securities |
| Futures – On the sale of futures in securities through the recognized stock exchange |
0.01% | Value of sale of future in securities |
| Mutual fund – Every seller of an equity-oriented unit of a mutual fund on the sale of such equity-oriented unit of a mutual fund through a recognized stock exchange |
0.025% | Value of sale of an equity-oriented unit of mutual fund |
Securities Transaction Tax (STT) Due Date & Return Filing
Every person who is liable to pay Securities Transaction Tax (STT) is required to deposit the same on or before 7th of the month following the month in which such Securities Transaction Tax is collected/deducted. Also, Recognized Stock Exchange should file an annual return in the prescribed format on or before 30th June of the Financial Year succeeding the Financial Year in which such Securities Transaction Tax is collected. Finally, all Recognized Mutual Fund should file an annual return in the prescribed format on or before 30th June of the Financial Year succeeding the Financial Year in which such Securities Transaction Tax is collected.
Securities Transaction Tax Treatment under Income Tax
- Treatment of STT under Income Tax depends on its classification. If the purchase of share are treated as investment activity than income from securities would be taxable under the head ‘Income from Capital Gains’, however, if the purchase of shares is treated as a business activity than income from such securities would be taxable under the head ‘Profits and Gains of Business or Profession’.
- If the income is taxable under the head ‘Income from Capital Gains’ than gain or loss on the sale of such securities are taxable as Short Term Capital Gain or Long Term Capital Gain depending upon the holding period of such shares/securities.
- If the holding period is less than 1 year than the same would be treated as Short Term Capital Gain and any equity share which has been sold through the recognized stock exchange and on which STT has been paid, sale of such shares shall be taxed @15%.
- If the holding period is more than 1 year than the same would be treated as Long Term Capital Gain and any equity share which has been sold through the recognized stock exchange and on which STT has been paid, sale of such shares shall be taxed @10%.
- If the income is taxable under the head ‘Profits and Gains of Business or Profession’, then in such case income from sale of such share or securities would be taxed at regular rate of income tax, however, the STT paid in respect of such shares would be allowed as deduction under section 36 of the Income Tax Act, 1961.
To know about the concept of Commodities Transaction Tax, click here.
