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Securities Transaction Tax

Securities Transaction Tax

While planning transactions, most investors miss out on an important element - Securities Transaction Tax (STT).

STT was introduced in 2004 to collect taxes from financial market transactions and prevent tax evasion on capital gains from listed securities.

Transactions on which Securities Transaction Tax is payable

STT applies to shares, bonds, debentures, derivatives, units issued by collective investment schemes and equity-based rights or interests in securities and equity mutual funds.

Taxable securities also include unlisted shares sold under an offer for sale to the public and subsequently listed in stock exchanges.

STT is collected by a recognized stock exchange or by a lead merchant banker (in case of IPO). Data revealed that STT amounted to INR 11,527 crore as of 1 April 2019.

Rate of STT

The rate of taxation for STT depends upon the type of security and transaction. It is added to the transaction value.

Category of Securities

Rate of Tax

Delivery based purchase and sale of equity share


Delivery based sale of a unit of oriented mutual fund


Sale of a unit of equity-oriented mutual funds other than by actual delivery or transfer and intraday traded shares


Sale of unit of an equity-oriented fund to the Mutual Fund – Exchange-traded funds (ETFs)


Sale of unlisted shares under an offer for sale included in IPO and subsequent listed


Under Derivatives:


Sale of an option in securities


Sale of an option in securities where option is exercised


Sale of futures in securities


Note: Purchase of units of Equity Oriented Funds are not subject to STT.

Value on which STT is computed


Option in securities

  1. Option premium
  2. Settlement price

Derivative - Futures

Purchase or Sale price of Futures

Derivative - Other

Purchase or Sale of Securities

Securities Transaction Tax vis-a-vis Income Tax

The profit or loss from securities transactions is categorised as capital gains or business income. Taxation varies based on the classification of income.

  • Capital Gains

    The rate of tax varies for long-term and short-term capital gains.

    If the holding period of securities is less than one year, then gains or losses are categorized as Short-Term. Short-term capital gain is taxable at 15% plus surcharge and education cess.

    When the holding period is more than one year, gains or losses are Long-Term. Sale of an equity share of a listed company and on which STT has been paid is exempted from tax on long-term capital gains under Section 10(38) of the Income Tax Act, 1961.

  • Business Income

    When an assessee’s principal business is trading securities, gains or losses are classified under the head Business Income. Securities Transaction Tax is allowed as a deductible expense under section 36 of the Income Tax Act, 1961.

    STT not only ensures transparency to the system of security trading but also reduces the inflow of income into speculative transactions.

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