Securities Transaction Tax (STT) is a direct tax levied on the purchase and sale of securities listed on recognized stock exchanges in India. Introduced in the 2004 Union Budget and implemented from October 2004, the core aim of STT is to curb tax evasion in the securities market by ensuring traceability of transactions.
Let’s break down everything you need to know about STT — its applicability, rates, due dates, and income tax treatment.
What is Securities Transaction Tax (STT)?
STT is a turnover-based tax, meaning it is calculated as a percentage of the transaction value — whether you’re buying or selling. It applies only to transactions conducted through recognized stock exchanges and does not apply to off-market trades.
This tax applies to a range of securities such as:
- Equity shares
- Derivatives (futures and options)
- Equity-oriented mutual funds
- Government securities of an equity nature
- Securitized debt instruments
- Instruments issued under collective investment schemes
These securities are defined under the Securities Contracts (Regulation) Act.
STT Rates – A Quick Reference Table
| Transaction Type | STT Rate | Payable On |
| Equity shares (buy/sell on exchange) | 0.1% | Transaction value |
| Purchase of equity-oriented mutual fund | 0.1% | Purchase value |
| Sale of equity-oriented mutual fund | 0.025% | Sale value |
| Sale of options (not exercised) | 0.017% | Premium received |
| Exercise of options | 0.125% | Settlement price |
| Sale of futures | 0.01% | Sale value |
Note: The applicable party (buyer/seller) varies based on the transaction type.
STT Filing and Payment Deadlines
Those responsible for collecting STT (mainly stock exchanges and mutual funds) must:
- Deposit STT: On or before the 7th of the next month after collection.
- File annual return:
- Recognized stock exchanges: By 30th June of the following financial year.
- Recognized mutual funds: Also by 30th June of the following financial year.
Income Tax Treatment of STT
The tax treatment of STT under the Income Tax Act, 1961, depends on how the securities transactions are classified — investment or business:
1. As an Investment
- Taxable under Income from Capital Gains
- Short-Term Capital Gains (STCG): If held for less than 1 year, taxed at 15%
- Long-Term Capital Gains (LTCG): If held for more than 1 year, taxed at 10% (on gains exceeding ₹1 lakh annually)
Condition: STT must have been paid on sale through a recognized stock exchange.
2. As a Business Activity
- Taxable under Profits and Gains of Business or Profession
- Taxed at the applicable slab rate
- STT paid is allowed as a deduction under Section 36 of the Income Tax Act
Key Takeaways
- STT ensures transparency and prevents tax evasion in stock market transactions.
- It applies only to exchange-traded securities, not off-market ones.
- Investors need to be aware of how STT affects capital gains and tax deductions.
- Filing and payment deadlines must be strictly followed by responsible entities.
By understanding the fundamentals of STT, both investors and traders can plan their trades and tax filings more efficiently. Whether you’re a seasoned investor or just getting started in the stock market, being informed about STT is essential to ensure compliance and maximize returns.
