Budget 2024 Update
Securities Transaction Tax (STT)
STT on Futures and options has been increased to 0.02% and 0.01% respectively.
Listed financial assets held for more than a year will be classified as long term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term.
Introduction of STT or Securities transaction tax is levied when you make a transaction, whether of purchase or sale, on recognised stock exchange in India. No STT is levied when any transaction is made in currency or commodity market.
STT (Securities Transaction Tax) is not something new. In fact, it was introduced way back in 2004 as a part of the Financial Act to collect taxes efficiently from the financial market. This article will mainly discuss the following questions:
Securities Transaction Tax (STT) is a type of direct tax that is payable on the total value of securities and stock exchanges in India. Up to 2016, it constituted 0.1% of the delivery based equity trading. These taxes do not include the transactions that are made on a non recognized stock exchange. Also, commodity and currency transactions are barred from STT.
Securities Transaction Tax came up in the year 2004, introduced by the then Finance Minister, P. Chidambaram. This was introduced to prevent tax evading. Later, the STT was revised to establish taxes constituting 0.1% of the total turnover. The rates of STT are different based on whether the equity shares have been bought or purchased. With the new amendment coming up, the STT has been reduced to 0.01% on the sell-side only for Futures while reduced to 0.05% only for the Equity options. While for the rest of the tax structures, they remain constant.
The STT is levied by the Union Government of India from the dealers. All the rates are decided by the Central Government itself. Surprisingly for the Securities Transaction Tax, the Securities Regulation Contract Act was established long before in the year 1956 to provide provisions to the securities taxes under this. The provisions for the collection of STT are the same as those concerning the TCS and the TDS.
Generally, the STT is calculated by a recognized stock exchange or by the prescribed person in the case of Mutual Funds. These are payable to the Government on or before the 7th day of the following month. In case the prescribed person fails to collect the taxes, the taxpayers should still pay the taxes equivalent to the calculated taxes within the 7th day of the following month. Failure to do so may result in the levying of heavy interests and even penalties.
The term ‘Securities’ as per the definition in the Securities Contract (Regulation) Act includes those assets that are liable for Securities Transaction Tax. These constitute the following:
So, we see that 'securities' is a wide term when it comes to Securities Transaction Tax (STT). The STT includes all of the above securities that are recognized by the stock exchange when it comes to levying taxes.
The Securities Transaction Taxes are levied at a specific interest for each section according to the Security Contract Act by certain people, a buyer or a seller, on a particular value. These taxes are not random but actually calculated carefully.
| Securities that come under the Securities Contract Act | Rate counted on each security | The taxpayer who should pay this STT | The total value on which the Securities Transaction Tax is paid |
|---|---|---|---|
| Purchase of Equity shares that are delivery-based | Charged 0.1% | Paid by the buyer | On the total price of the equity share at which it was purchased |
| Sale of Equity shares that are delivery-based | Charged 0.1% | Paid by the seller | On the total price of the equity share for which it was sold |
| Sale of a unit of oriented mutual funds that are delivery-based | Charged 0.01% | Paid by the seller | On the total price of the equity share for which each unit is sold |
| Sale of an option in security derivatives | Charged 0.017% | Paid by the seller | On the total value of option premium |
| Sale of an option in security derivatives where the option is exercised | Charged 0.125% | Paid by the buyer | On the total value of the settlement price |
| Sale of futures in option derivatives | Charged 0.01% | Paid by the seller | On the total value at which the futures are traded |
| Sale of equity funds or the oriented mutual fund in recognized stock exchange which are not traded by actual delivery or by transfer and intra-day shares | Charged 0.025% | Paid by the seller | On the total amount at which the equity share or equity unit is sold |
| Sale of a unit through Exchange-traded funds (ETFs) when equity funds are changed into mutual funds | Charged 0.001% | Paid by the seller | The total amount at which the unit is sold |
| Sale of unlisted shares to the public and have been included in IPO to be listed in stock exchanges | Charged 0.2% | Paid by the seller | The total amount at which the shares are sold |
| Purchase of unit equity placed under mutual funds | Nil | Paid by the buyer | Not Available |
For a piece of more detailed information regarding how the taxes are calculated on equity funds, you can refer to Rule 3 of the STT RULES, which was established in the year 2004.
On the 27th day of August in 2018, the CBDT clarified regarding certain rules for the Physical Delivery of Derivatives. This derivative contract is generally paid in cash for those stocks which have not been physically delivered.
In 2004, the introduction of the Securities Transaction Tax (STT) came alongside a taxpayer benefit in Section 10(38) of the income tax law. This section offered an advantage for capital gains on the sale of shares or EOMFs that were subject to STT. Up until March 31, 2018, any capital gain on such securities enjoyed a beneficial tax rate, often resulting in zero tax liability.
Tax Rates Before April 2018:
Reason for Changes: Addressing Potential Abuse
The government expressed concerns about the potential misuse of these exemption provisions. Some individuals might have been declaring unaccounted income as long-term capital gains to avoid taxes by engaging in "sham transactions."
Changes Implemented in April 2018 Budget
The Finance Budget of 2018 aimed to address these concerns by revising the taxation structure for long-term capital gains on shares and EOMFs. Here's a breakdown of the changes:
Grandfather Clause for Pre-2018 Acquisitions
The budget offered some relief for those who had already invested in shares or EOMFs before February 1, 2018. A "grandfather clause" was implemented:
Taxation of Trading Income and STT
The concept of STT remains relevant for those who trade in securities as a business. If someone reports the income/loss from such trading as business income, the STT paid on those transactions is allowed to be deducted as a business expense. This helps offset the taxable income from their trading activities.
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STT (Securities Transaction Tax) . Different STT rates are applicable for Equity (cash) and Futures and Options (F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT (Commodities Transaction Tax) is levied.
Security Transaction Tax (STT) is a direct tax which is levied on buying/selling of financial instruments like equity, debentures, bonds, derivatives, mutual funds. In mutual funds, the STT is levied only on sale of MF units in equity and balanced funds, applicable on both open ended and close ended schemes.
STT is levied on purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives, or equity-oriented mutual funds units, Securities transaction tax (STT) was introduced in India a few years ago to curb tax avoidance on capital gains.
Securities Transaction Tax (STT) is a type of financial transaction tax levied in India on transactions done on the domestic stock exchanges. 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.
STT (Securities Transaction Tax) . Different STT rates are applicable for Equity (cash) and Futures and Options (F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT (Commodities Transaction Tax) is levied.
Zerodha acts as a broker and doesn't directly determine the Securities Transaction Tax (STT). STT is a levy mandated by the Indian government and applies to buying and selling taxable securities on recognized Indian stock exchanges.