What is STT? A Clear Guide to Securities Transaction Tax in India
Investors often notice a charge called “STT” on their contract notes after buying or selling shares. While the amount may appear small, it forms an important part of overall trading costs and deserves clear understanding.
Securities Transaction Tax (STT) has been part of India’s capital market framework since 2004. For anyone investing or trading in the stock market, understanding STT is just as important as knowing brokerage charges or exchange fees. This guide explains STT in simple terms and clears common misconceptions.
What is STT?
STT stands for Securities Transaction Tax. It is a transaction-based tax levied by the Government of India on certain securities transactions executed on recognised stock exchanges such as NSE and BSE.
Importantly, STT is not a tax on profits or gains. It is charged purely on the value of the transaction, irrespective of whether the trade results in a profit or a loss.
When a trade is executed, the applicable STT is automatically calculated and deducted by the broker along with other statutory charges. The broker then remits the collected STT to the government within the prescribed timelines.
Why Was STT Introduced?
Before the introduction of STT, monitoring capital market activity and ensuring proper tax compliance was challenging. Tax authorities largely depended on investors to maintain records of transactions and accurately report capital gains, which made administration complex and compliance uneven.
STT was introduced with the following objectives:
→ Simplifying tax collection by levying a small tax at the transaction level
→ Improving compliance and transparency, as the tax is collected at source
→ Easing administration by ensuring assured and straightforward tax collection on eligible transactions
It is important to note that STT does not replace capital gains tax. Capital gains are still computed separately under the Income-tax Act, while STT operates independently as a transaction tax.
Where is STT Applicable?
STT applies to specific securities and transaction types as outlined below:
(1) Equity Shares
- Delivery-based transactions: STT is levied on both buy and sell transactions
- Intraday transactions: STT is levied only on the sell side
(2) Equity Futures
- STT is levied only on the sell side
- No STT is charged at the time of buying futures contracts
(3) Equity Options
- STT is levied only on the sell side of the option premium (i.e., on option writers)
- If an option is exercised, STT is additionally levied on the settlement value
- Option buyers are not charged STT on the purchase premium
(4) Equity Mutual Funds and ETFs
- Equity-oriented mutual funds (non-ETF): STT is levied only at the time of redemption, not at the time of purchase
- Equity ETFs traded on the stock exchange: STT applies on both buy and sell transactions, similar to equity shares
(5) Clarification on Commodity Transactions
- Securities Transaction Tax (STT) is applicable only to securities transactions executed on recognised stock exchanges such as NSE and BSE.
- Commodity derivatives traded on the Multi Commodity Exchange of India (MCX) do not attract STT. Instead, certain non-agricultural commodity derivatives are subject to Commodity Transaction Tax (CTT), as prescribed by the Government of India.
STT Rates: How Much Do You Pay?
The rates differ based on your transaction type. Here's what you'll pay:
| Transaction Type | When Charged | STT Rate |
|---|---|---|
| Equity Delivery (Buy) | On purchase value | 0.10% |
| Equity Delivery (Sell) | On sale value | 0.10% |
| Equity Intraday | Only on the sell side | 0.025% |
| Equity Futures | Only on the sell side | 0.05% |
| Equity Options (Premium) | Only on the sell side | 0.15% |
| Equity Options (Exercise) | On settlement value | 0.15% |
These rates are as per the prevailing provisions notified by the respective authority.
Conclusion
Securities Transaction Tax is a small but significant component of trading and investment costs in India. Being a transaction-based tax, it applies regardless of profit or loss, making it predictable and easy to factor into trading decisions.
For long-term investors, STT generally represents a marginal cost, while for active traders, it becomes an important element in overall cost analysis. Importantly, payment of STT enables equity investors to avail preferential capital gains tax treatment under the Income-tax Act, subject to applicable conditions.
At Integrated, we believe that clarity on statutory charges such as STT empowers investors to plan their trades better, manage costs efficiently and stay focused on long-term wealth creation.
Sources - Times of India, Clear Tax, indian budget
Disclaimer- This blog is for informational purposes only and should not be considered investment, tax, or legal advice. Securities Transaction Tax rates and rules are subject to change as per government regulations. Readers are advised to consult a qualified financial or tax professional before making any investment or trading decisions.