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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.

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

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

  • Increases overall trading costs
  • Affects short-term traders more than long-term investors
  • Incorporated into stock market regulations for tax compliance
  • Influences trading strategies and frequency of transactions

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.

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