Securities Transaction Tax (STT) in India was introduced by the former finance minister of India P. Chidambaram with effect from October 1, 2004. Securities Transaction Tax (STT) is a kind of turnover tax that is levied by the central government on the total consideration paid or received in a transaction.
As the name implies, Securities Transaction Tax (STT) is levied on the following transactions;
- Purchase or sale of an equity share in a company or a derivative or a unit of an equity oriented fund or unit of a business trust, entered into in a recognized stock exchange.
- Sale of unlisted equity shares under an offer for sale to the public included in an initial public offer.
- Sale of unlisted units of a business trust by an holder of such units which were acquired in consideration of a transfer referred to in section 47(xvii) of the Income tax act under and offer for sale to the public included in an initial offer and where such units are subsequently listed on a recognized stock exchange.
- Sale of unit of an equity oriented fund to the mutual fund
- Sale or surrender or redemption of a unit of an equity oriented fund to an insurance company on maturity or partial withdrawal with respect to ULIP issued by such insurance company on or after 01-02-2021.
If a fund has been set up under a scheme of mutual fund and more than 65% of the total proceeds of the fund is invested in equity shares in domestic companies, then it will be treated as equity oriented fund.
Value on which Securities Transaction Tax (STT) is levied
Value of a taxable securities transaction depends on the type of financial security traded by a person.
In case of options, the aggregate of the strike price and the option premium shall be the value of taxable securities.
In all other cases, value shall be the price at which such securities are traded.
Who shall collect Securities Transaction Tax (STT)
It’s the responsibility of the recognized stock exchange, to collect the securities transaction tax (STT) from every person being a purchaser or seller of taxable securities in that stock exchange.
In the case of a mutual fund, when units are sold to the fund house, STT shall be collected by the prescribed person in the mutual fund.
At the time of IPO (initial public offer), Securities Transaction Tax (STT) shal be collected by the lead merchant banker.
With respect to ULIP issued on or after 01-02-2021, STT shall be collected by the insurance company.
After collecting securities transaction tax, it is the responsibility of these persons to pay it to the credit of the central government by the 7th day of the month following the month in which the STT is collected.
Rate of Securities Transaction Tax (STT)
The STT applicable in the case of intraday transaction will be different from the one applicable in the case of delivery transaction.
Securities Transaction Tax (STT) for intraday sale of equity shares in a recognized stock exchange is 0.025%.
Let us understand how to calculate Securities Transaction Tax (STT) with an example.
Suppose Mr. X has purchased 1,000 shares of XYZ company limited from a recognized stock exchange (NSE/BSE) at Rs 100 per share and sold it at Rs 120 on the same day. As discussed above, for intraday sale of equity shares STT is 0.025%.
Therefore, in this case, Securities Transaction Tax (STT) is equal to Rs 30 (i.e. 1000*120*0.025%)
For non-delivery based trades in the case of a unit of equity oriented mutual fund or units of a business trust, the rate of STT is also 0.025%.
Here are the rates of securities transaction tax (STT) for delivery based trades;
| Taxable securities transaction | Rate of STT | Who has to pay STT |
|---|---|---|
| Purchase of equity share (Delivery based) | 0.1% | Purchaser |
| Sale of an equity share (Delivery based) | 0.1% | Seller |
| Sale of a unit of equity oriented mutual fund (Delivery based) | 0.001% | Seller |
| Equity Intraday | 0.025% | on sell-side |
Remember, Securities Transaction Tax (STT) for the intraday trades will be charged @ 0.025% on only the sell side.
However, STT for the delivery transaction will be charged @ 0.1% on both the buy and sell.
In the case of derivative;
| Taxable securities transaction | Rate of STT | Who has to pay STT |
|---|---|---|
| Sale of an option in securities | 0.1% | Seller |
| Sale of futures in securities | 0.02% | Seller |
| Sale of an option in securities where option is exercised | 0.125% | Purchaser |
Securities transaction tax charged in all other cases are as follows;
| Taxable securities transaction | Rate of STT | Who has to pay STT |
|---|---|---|
| Sale of unit of an equity oriented fund to the mutual fund | 0.001% | Seller |
| Sale of unlisted shares under an offer for sale to public included in IPO and where such shares are subsequently listed in stock exchanges | 0.2% | Seller |
| Sale of unlisted units of a business trust by a unit holder which were acquired in consideration of transfer referred to in section 47(xvii) | 0.2% | Seller |
| Sale or surrender or redemption of a unit of an equity oriented fund to an insurance company on maturity or partial withdrawal with respect to ULIP issued on or after 01-02-2021 | 0.001% | Seller |
When Securities Transaction Tax (STT) is not applicable
Securities Transaction Tax (STT) is not applicable in the following cases;
- in respect of transaction entered into by any person for, or on behalf of, the New Pension System Trust; or
- in respect of a transaction entered into by any person on a recognized stock exchange located in an international financial services center where the consideration for such transaction is paid or payable in foreign currency.