Securities Transaction Tax (STT) in India -STT Rate and Exemptions| Motilal Oswal

Securities Transaction Tax (STT) in India - Explained

What is STT?

Securities Transaction Tax (STT) is a type of financial transaction tax payable in India on every purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives or equity-oriented mutual funds investment units (excluding commodities and currency). The tax is not applicable on off-market transactions or on commodity or currency transactions. The rates of STT are prescribed by the Central / Union Government through its Budget from time to time. In tax parlance, this is categorized as a direct tax. Collection of this tax is a statutory requirement which a broker needs to follow. The collected amount is then paid to government. The charges and rate of STT are reflected on the contract notes which a broker provides to its clients for every execution of trades. The rate of tax varies with different types of transactions and securities.

The securities transaction tax (STT) was introduced in India a few years ago, to stop tax avoidance of capital gains tax.

STT Rate currently prevailing

As per the Finance Act 2004, and modified by Finance Act 2008 (18 of 2008) STT on the transactions executed on the Exchange shall be as under:

SrNo.Taxable securities transactionRates**Payable by1Sale of an option in securities0.05 %Seller2Sale of an option in securities, where option is exercised0.125 %Purchaser3Sale of a futures in securities0.01 %Seller4Delivery-based equity shares (Purchase)0.1 %Purchaser5Delivery-based equity shares (Sale)0.1 %Seller6Equity oriented mutual funds0.001 %Redemption of units7Equity shares, equity mutual fund units0.025 %Seller8STT on intra-day transaction0.025 %Seller

** The rates mentioned herein keeps on changing as per government’s directives.


STT Exemption under Income Tax:

As per Sec 36 of Income Tax Act 1961, STT can be claimed under income tax if the STT amount which you have paid is allowed as business expenditure provided you are showing share income under the head "Profits/Gains from Business and Profession" i.e. if trading of stocks is being made as a professional choice and is being carried out from business point of view. 

However if an assesse is a salaried or self-employed person who deals in stock transactions only for investment purposes and trading in securities is not what he does as his main line of profession, then Gains or losses in such cases can be grouped as short-term capital gains or long-term capital gains depending upon the period for which the stocks are held. And such person cannot claim STT under Income Tax.

At the end of the year, we provide a certificate of the STT that you have paid through the year. You can get a tax credit, as per conditions mentioned above.

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