What is Securities Transaction Tax or STT? Meaning

Income and taxes are two sides of one coin. They complement and supplement each other every time. Like any other country, India has a very wide-spread tax scheme and policy to control tax evasion and ensure tax liability. Securities transaction tax or STT is one of the direct taxes levied here in India which was introduced in 2004 with a motive to curb tax evasion on capital gains and encourage trading.

What is Securities Transaction Tax or STT?

STT the tax which is payable at the time of transfer (buy & sell) of securities that are listed on stock exchanges in India. That simply means any shares or commodity traded in the un-recognised market don't come under the purview of STT. The said tax is governed by Securities Transaction Tax Act (STT Act) which enlists all the securities transaction on which the tax is to be paid.

Securities which comes under the purview:

As per the Securities Contract Act, 1956 norms, following are the list of securities covered:

• Shares, bonds, debentures or any such marketable security which is traded at the stock market

• Derivatives traded in the market

• Government securities (equity-based)

• Mutual funds (equity-based)

• Units issued by any recognized investment laid down under SEBI.

How STT is calculated?

Where an individual buys 1000 shares @ Rs.20 each (i.e. total worth Rs.20,000) and sells the same Rs.30 each. Assuming this is an intra-day transaction (i.e. shares were bought & sold in a day).

Thus capital gain earned on such transaction intraday STT will apply @ 0.025%.

So, STT = 0.025*(30-20)*1000 = Rs.250

What are the STT rates applicable?

Below are the details of STT rates applicable:

• For a delivery-based equity transaction (Both Sales & Purchase) 0.1% and

• On an intra-day transaction: 0.025%

• Delivery based sale of a unit of oriented mutual fund: 0.001%

• On all Derivative (Futures and Options) transactions: 0.01%.

Income Tax & STT

Tax on Capital Gain

As per earlier law to remove the tax burden on the investor and to encourage trading, the STT for any capital gain on the transaction of shares or equity was borne by the company. Any such share on which STT was paid was tax-free in the hands of the investor. But in 2019 budget, the same was abolished and now the burden has been shifted back on the investor. Thus from April 2019 onwards where ever there is a transfer of shares and any gain earned, the tax-payer has to pay the complete tax i.e. Short term capital gain @ 15% and long term capital gain @ 20%.

Tax on Business Income

The individual, whose core business is trading in securities, can show the STT paid as “business expense.”

To sum it up, STT is the tax levied on the value of securities (except commodities and currency) that are transacted on recognized stock excchange in India. Thus no transaction would be complete without the payment of such tax. Which in-turn makes the operation transparent and easy to track, ultimately keeping the tax evasion under proper checks and controls.