STT (Securities Transaction Tax)

What is STT (Securities Transaction Tax)?

Securities Transaction Tax, commonly known as STT, is a direct tax levied on the purchase and sale of securities listed on the stock exchanges in India. Introduced in 2004, STT is a critical aspect of trading in the stock market. Here's a closer look at its key features, tax rates, applicability, and how it's levied:

• Features: STT is known for its straightforward nature. It is automatically deducted from transactions made on the stock exchange, making it hassle-free for investors.

• Tax Rate: The rate of STT varies depending on the type of security and the transaction (purchase or sale). For example, the rate for delivery-based equity trading is different from intraday trading.

• Applicability: STT applies to stocks, derivatives, and other securities traded on the stock exchange. It does not apply to off-market transactions or securities traded on commodity exchanges.

• Levy: The tax is levied at the time of the transaction. For sellers, it's deducted from the transaction amount, and for buyers, it's added to the cost of acquisition.

Securities Transaction Tax plays a significant role in the financial ecosystem. It not only contributes to Government revenues but also impacts your investment returns to some extent. With a clear understanding of STT, you can better pick your stock market investments. 

Securities on Which STT is Applicable

Understanding on which securities STT is levied is crucial for investors in the Indian stock market. Here's a table outlining various securities subject to STT:

Levy of Securities Transaction Tax in India

*For information on how to value transactions involving taxable equities or equity-oriented mutual funds, please refer to Rule 3 of the Securities Transaction Tax Rules, 2004.

Securities Transaction Tax and Income Tax

Understanding the relationship between Securities Transaction Tax (STT) and Income Tax is crucial for investors in optimising their tax liabilities. Here's how they interact:

• Tax Treatment of STT: One of the key features of STT is that it is not deductible from the taxable income under the Income Tax Act. This means that while calculating income tax, STT paid cannot be claimed as a tax-deductible expense.

• Capital Gains and STT: For capital assets where STT is paid, certain benefits in capital gains tax are available. For instance, in the case of equity shares, short-term capital gains are taxed at a concessional rate of 15% under Section 111A, provided STT is paid. For long-term capital gains on equity shares and equity-oriented mutual funds, there is an exemption limit under Section 10(38), subject to certain conditions, including the payment of STT.

• Set-off of STT Against Gains: Investors cannot set off the amount paid as STT against their capital gains or any other income head. STT is a standalone tax paid on the transaction value at the time of purchase or sale of securities.

When is Securities Transaction Tax Levied?

The levy of STT is specific to the type of transaction and the security involved. Here are the key scenarios:

• At the Time of Transaction: STT is levied immediately at the time of purchase or sale of eligible securities. For instance, when buying or selling equity shares through a stock exchange, STT is automatically deducted by the broker.

• Applicability on Different Securities:

• Equity Shares: Levied on both purchase and sale when traded on a stock exchange.
• Equity Derivatives: Levied on the sale of futures and options.
• Mutual Funds: Applicable on the sale of equity-oriented mutual fund units traded on a stock exchange.

• Exemption Scenarios: There are certain transactions where STT is not levied, such as off-market transactions or the sale of securities that are not traded on a stock exchange.

Understanding when STT is levied helps investors plan their transactions and understand the tax implications. 

STT Example

To demonstrate how Securities Transaction Tax (STT) is applied, let's consider a hypothetical example involving the purchase and sale of equity shares:

Conclusion

In summary, understanding the Securities Transaction Tax (STT) is essential for anyone participating in the Indian stock market. STT affects the net returns from your securities transactions and is a vital part of financial planning for investors. 

FAQs on Securities Transaction Tax (STT)

Q1: What is Securities Transaction Tax (STT)?

A1: STT is a tax levied on the purchase and sale of securities traded on stock exchanges in India.

Q2: On what types of securities is STT applicable?

A2: STT applies to equity shares, derivatives, and units of equity-oriented mutual funds traded on stock exchanges.

Q3: Is STT applicable on all stock market transactions?

A3: No, STT does not apply to off-market transactions or securities traded on commodity exchanges.

Q4: What is the rate of STT?

A4: The rate of STT varies depending on the type of security and the nature of the transaction (purchase or sale). It is generally a small percentage of the transaction value.

Q5: Can I claim STT as a deduction in my income tax return?

A5: No, STT paid cannot be claimed as a deduction while calculating your income tax.

Q6: How is STT paid?

A6: STT is automatically deducted by the broker at the time of the transaction on the stock exchange.

Q7: Does STT affect capital gains tax calculations?

A7: Yes, for capital gains arising from securities where STT is paid, there are specific tax provisions, like concessional rates for short-term capital gains in equities.

Q8: Is there any exemption from STT?

A8: STT is generally not levied on transactions that occur off the stock exchange or on securities that are not covered under the STT Act.

Q9: Does STT apply to mutual funds?

A9: Yes, STT applies to the sale of units of equity-oriented mutual funds on stock exchanges.

Q10: Is STT levied on the transfer of securities in demat form?

A10: STT is levied on the sale and purchase of securities in demat form if the transaction occurs through a stock exchange.