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Securities Transaction Tax (STT) is the tax payable on the value of taxable securities transaction.
STT was introduced in India by the 2004 budget and is applicable with effect from 1st October
2004.

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Securities definition is as per section 2(h) of the Securities Contracts (Regulation) Act, 1956, but
for our purpose, let¶s just simply say Securities mean Equity Shares and Equity Derivatives (i.e.
Futures and Options). Full definition of Securities is given in Appendix, for information.

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Purchase and Sale of securities through a recognised stock exchange in India. STT is not
applicable on off-market transactions.

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STT is applicable at different rates depending upon the security (whether equity or derivative)
and the transaction (whether purchase or sell). Current STT rates are given below. Note that
Service Tax, Surcharge and Education Cess are not applicable on STT.


   




 

^
 


Π
0.125% of Turnover i.e. (Number of Shares * Price)


 0.125% of Turnover i.e. (Number of Shares * Price)

 


Π
 NIL


 0.025% of Turnover i.e. (Number of Shares * Price)


   





 

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Π
 NIL


0.017% of Turnover i.e. (Number of Lots * Lot Size * Price)

 


Π
 NIL at the time of purchase of option. However the purchaser has to pay 0.125% of
the Settlement Price i.e. (Number of Lots * Lot Size * Strike Price), in case of option exercise


 0.017% of Premium

Summary of the STT rates is given in the table below:

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Purchase 0.125% Turnover
Equity-Delivery
Sell 0.125% Turnover
Purchase - -
Equity-Intraday
Sell 0.025% Turnover
Future Purchase - -
 Sell 0.017% Turnover
Purchase 0.125% Settlement price, on exercise
Option
Sell 0.017% Premium

Now that you have understood how STT is calculated, click here to understand more about
charges other than brokerage and STT levied on stock exchange transactions.





Taxation of profit or loss from securities transactions depends on whether the activity of
purchasing and selling of shares / derivatives is classified as investment activity or business
activity. Treatment of STT also depends upon whether the income from these securities
transactions are included under the head ³Income from Capital Gains´ or under the head µProfits
and Gains of Business or Profession¶.

Scenario 1: µIncome from Capital Gains¶

This refers to the scenario where the assessee is either Salaried or is engaged in some other
business or profession and trading in securities is not the main line of business. In such cases
gains or losses from securities transactions are taxed under the head ³Income from Capital
Gains´. Gains or losses are subject to Short Term Capital Gains (STCG) or Long Term Capital
Gains (LTCG) tax depending upon the period of holding, i.e., if the holding period is less than 1
year, gains are classified as STCG and if the holding period is equal to or greater than 1 year,
gains are classified as LTCG. Any equity share, which has been sold through a recognised stock
exchange and on which STT has been paid, is entitled to exemption from LTCG under Section
10 (38) of the Act. Similarly, in case of STCG of such shares, the gains shall be taxed only at
15%, plus surcharge and education cess under section 111A of the Act.

Important points to note:

` STCG and LTCG rates of 15% and NIL are available only if the specified security is sold
through a recognised stock exchange. Private deals or transactions, not routed through a
recognised stock exchange in India, will not be covered
` The purchase of the specified securities could be through any mode and need not be
through a recognised stock exchange
` The exemption is not available to transactions where STT has not been paid
` Since LTCG is exempt, Long Term Capital Loss, arising from these specified securities,
cannot be set-off against any other gain/income. This loss shall lapse
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Scenario 2: µProfits and Gains of Business or Profession¶

This refers to the scenario where main business of the assessee is trading in securities. In such
cases the gains or losses are classified as business income, which is taxed at the regular rate of
income-tax. STT paid in respect of taxable securities transactions entered into in the course of
business shall be allowed as deduction under section 36 of the Income-tax Act. † 
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³Securities´ is defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956, to
include:
 shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a
like nature in or of any incorporated company or other body corporate;
 derivative;
 units or any other instrument issued by any collective investment scheme to the investors in
such schemes;
 security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002;
 Government securities;
 such other instruments as declared by the Central Government; and
 rights or interest in securities.