BAJAJ BROKING

Notification close image
No new Notification messages
card image
Borana Weaves IPO is Open!
Apply for the Borana Weaves IPO through UPI in just minutes.
delete image
card image
Open a Free Demat Account
Pay ZERO maintenance charges for the first year, get free stock picks daily, and more.
delete image
card image
Trade Now, Pay Later with up to 4x
Never miss a good trading opportunity due to low funds with our MTF feature.
delete image
card image
Track Market Movers Instantly
Stay updated with real-time data. Get insights at your fingertips.
delete image

Securities Transaction Tax (STT)

Securities Transaction Tax (STT) is a tax levied on the purchase and sale of securities listed on recognised stock exchanges in India. The tax is applicable to equity shares, derivatives, and equity-oriented mutual funds. It is collected by the government to regulate market transactions and ensure transparency in securities trading.

Key Takeaways

  • Securities Transaction Tax (STT) is a direct tax levied on the buying and selling of securities listed on Indian stock exchanges. It applies to transactions such as equity shares, derivatives, equity-oriented mutual funds, and more.
  • STT on futures has been revised to 0.02%, and on options to 0.1%, effective from October 1st, 2024.
  • The hike in STT rates has increased the cost of trading in futures and options, especially for high-frequency traders.
  • Both NSE and BSE now apply the same STT structure, ensuring consistency across leading stock exchanges in India.

What is Securities Transaction Tax (STT)?

Securities Transaction Tax (STT) is a direct tax imposed on transactions conducted on stock exchanges. It applies to both buyers and sellers of certain financial instruments, such as equities and derivatives. The tax is deducted at the source by the exchange and is remitted to the government.

How Does Securities Transaction Tax Work?

STT is charged as a percentage of the transaction value and is applicable at the time of buying or selling securities. The rate of STT varies based on the type of security and the nature of the transaction, such as delivery-based equity trades, intra-day trades, or derivatives.

Securities on Which STT is Applicable

STT is levied on various securities, including:

  • Equity shares (listed on stock exchanges)
  • Equity-oriented mutual funds
  • Futures and options contracts
  • Sale of unlisted shares in an initial public offering (IPO) that are subsequently listed

STT Charges for Different Order Types

Order Type

Rate of STT

Applicable on

Delivery-based equity trade (buy)

Nil

-

Delivery-based equity trade (sell)

0.1%

Transaction value

Intraday equity trade (buy)

Nil

-

Intraday equity trade (sell)

0.025%

Transaction value

Equity futures (sell)

0.0125%

Transaction value

Equity options (sell)

0.0625%

Premium amount

Exercise of options

0.125%

Settlement price

Sale of unlisted shares under IPO

0.2%

Transaction value

STT Calculation

STT is computed as a percentage of the transaction value or premium amount, depending on the security type. For example, if an investor sells equity shares worth Rs. 1,00,000 in a delivery-based trade, STT at 0.1% would amount to Rs. 100.

Levy of Securities Transaction Tax

STT is levied on transactions occurring on recognised stock exchanges and is collected by the exchange at the time of trade execution. The collected tax is then deposited with the government.

Features of Securities Transaction Tax

  • Levied on transactions executed on recognised stock exchanges
  • Collected at the source by the exchange
  • Applicable to both buy and sell trades in specific securities
  • Non-refundable and included in transaction costs
  • Different rates for various types of trades

Importance of Securities Transaction Tax

  • Revenue Collection for Public Spending: One of the main objectives behind STT is to raise funds for the government. The tax collected through securities trades forms part of national revenue and can be directed towards welfare schemes, infrastructure work, and broader fiscal needs.
  • Market Oversight and Monitoring: STT acts as a tool for supervising activities within the stock market. It allows regulators to trace trades more efficiently and detect any unusual or suspicious movements that may point to manipulation.

Despite these benefits, there are some concerns related to the implementation of STT:

  • Possible Decline in Trading Activity: When STT rates are high, some investors may cut down on frequent trading, as higher costs reduce their margin of profit.
  • Investor Shift to Other Investment Options: In certain cases, investors may turn to financial instruments not subject to STT, which can shift trading activity away from the equity segment and distort normal investment flows.

STT serves as a regulatory measure to ensure transparency in securities trading. It contributes to government revenue and simplifies tax collection by integrating it into stock market transactions.

Impact of Securities Transaction Tax on Investors

Securities Transaction Tax is applied on both buying and selling of listed securities. It plays a role in shaping investor behaviour and can influence overall market activity. Below is a look at how STT impacts investors:

  • Higher trading expenses: STT adds to the total cost of buying and selling securities. This reduces the net invested amount initially and affects the final payout when exiting the investment.
  • Lower market participation: A higher STT rate can discourage investors from actively trading, leading to fewer participants in the market and making it harder to match buy and sell orders.
  • Change in investment approach: Investors may revise their strategies to avoid instruments with higher STT. This often leads to a preference for longer-term holdings even when short-term gains were originally intended.
  • Reduced returns: Since STT is deducted on every trade—whether the investor earns or loses—overall profits shrink and losses deepen, which can pull down portfolio performance.
  • Effect on asset demand: Securities with higher STT can become less attractive, reducing investor interest. This fall in demand may lower the market value of such securities, impacting those already invested.

Securities Transaction Tax and Income Tax

STT is considered while calculating capital gains tax. For equity investments held for over a year, long-term capital gains tax is applicable, where STT payment is a prerequisite for eligibility under preferential tax rates.

STT vs. Other Trading Taxes

Aspect

Securities Transaction Tax (STT)

Capital Gains Tax

Applicability

Stock market transactions

Gains from asset sales

Payment

Deducted at the time of trade

Paid during tax filing

Refundable

No

Not applicable

Purpose

Regulatory and revenue generation

Taxing investment gains

Conclusion

Securities Transaction Tax (STT) is levied on transactions involving securities traded on recognised stock exchanges. It ensures streamlined tax collection and contributes to government revenue. The tax impacts different categories of investors and traders based on their trading activity. Understanding STT rates and implications can assist in planning investment strategies effectively.

Share this article: 

Frequently Ask Questions

No Data Found

search icon

Read More Blogs

Disclaimer :

The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.

The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.

Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.

Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

[ Read More ]

For more disclaimer, check here : https://www.bajajbroking.in/disclaimer

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

10 lakh+ Users

icon-with-text

4+ App Rating

icon-with-text

4 Languages

icon-with-text

₹4300+ Cr MTF Book

icon-with-text
banner-icon

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|

Please Enter Mobile Number

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|