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Securities Transaction Tax (STT) In India: A Complete Guide

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Securities Transaction Tax (STT)


Securities Transaction Tax (STT) is a significant component of India’s tax structure that affects various participants in the stock market. It is a tax levied on purchasing or selling securities such as stocks, derivatives, and equity-oriented mutual funds.

This article will delve into India’s Securities Transaction Tax (STT) in India, its purpose, applicability, rates, exemptions, and its impact on investors and the overall market.

What is Securities Transaction Tax (STT)?

Securities Transaction Tax (STT) is a tax the Indian government imposes on purchasing or selling securities listed on recognized stock exchanges. It was introduced in 2004 as a part of the Finance Act and is aimed at collecting revenue and discouraging speculative trading. STT is applicable across various stock exchanges in India, including the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

  • Purpose of STT: Imposing the Securities Transaction Tax (STT) primarily aims to augment government revenues. Additionally, it serves as a deterrent to excessive speculation and short-term trading, encouraging long-term investment strategies. It also helps monitor and regulate the financial markets by creating a transparent and accountable environment.
  • Applicability of STT: STT applies to various transactions in the Indian securities market, including equity shares, equity-oriented mutual funds, derivatives, and equity-oriented exchange-traded funds (ETFs). It is important to note that STT applies to both the securities’ buyer and seller. STT is levied on various securities transactions, including equity delivery trades, equity intraday trades, derivatives trading, and mutual fund transactions. The rates and calculation methods for STT differ based on the type of transaction.

STT Rates and Calculation:

The rates of STT vary depending on the type of transaction. The STT rate is 0.1% on the total transaction value for equity shares and equity-oriented mutual funds. In the case of derivatives, the STT is levied at a lower rate of 0.01% on the option premium for exercised options and 0.05% on the settlement price for futures contracts.

A. STT on Equity Delivery Trades: When buying or selling equity shares for delivery (holding them beyond the settlement period), STT is levied at a specific percentage of the transaction value.

Let’s consider a scenario where an investor purchases 100 shares of ABC Company at INR 200 per share for delivery (holding them beyond the settlement period).

The transaction value = 100 shares * INR 200 per share = INR 20,000. The STT rate for equity delivery trades is 0.1% of the transaction value. STT = 0.1% * INR 20,000 = INR 20

In this case, the investor would pay INR 20 as STT when buying the shares and an additional INR 20 when selling them.

B. STT on Equity Intraday Trades: For equity intraday trades (buying and selling the same shares on the same trading day), STT applies to both the buy and sell transactions. The rates for intraday trades are lower than those for delivery trades.

Suppose a trader executes an intraday trade by buying and selling 50 shares of XYZ Company on the same trading day. The purchase price is INR 150 per share, and the selling price is INR 160 per share.

The buy transaction value = 50 shares * INR 150 per share = INR 7,500. The sell transaction value = 50 shares * INR 160 per share = INR 8,000. The STT rate for equity intraday trades is 0.025% on both the buy and sell transactions. STT on the buy transaction = 0.025% * INR 7,500 = INR 1.875 STT on the sell transaction = 0.025% * INR 8,000 = INR 2

In this case, the trader would pay INR 1.875 as STT when buying the shares and an additional INR 2 when selling them.

C. STT on Derivatives Trading: STT also applies to derivatives trading, including futures and options. The calculation of STT for derivatives depends on the settlement price and is charged on the option premium in the case of options trading.

Let’s consider a scenario where a trader trades in futures by buying one lot (consisting of 100 shares) of a stock futures contract at a futures price of INR 300 per share.

The futures contract value = 1 lot * 100 shares * INR 300 per share = INR 30,000. The STT rate for futures trading is 0.01% of the settlement price. Assuming the settlement price of the futures contract is INR 310 per share, the settlement value would be INR 31,000. STT = 0.01% * INR 31,000 = INR 3.1

In this case, the investor would pay INR 3.1 as STT on the futures contract.

Note: STT for options trading is levied on the premium value instead of the transaction value. The calculation differs based on factors such as the option type (call or put) and whether it is exercised. Specific formulas are used to determine the STT amount for options trading.

D. STT on Mutual Fund Transactions: STT is imposed on equity-oriented mutual funds on redemption, subject to certain conditions and exemptions. The rates and applicability vary based on the type of mutual fund and the holding period.

Suppose an investor decides to redeem units of an equity-oriented mutual fund. The investor holds 500 units of the mutual fund, and the Net Asset Value (NAV) per unit at the time of redemption is INR 50.

The transaction value = 500 units * INR 50 per unit = INR 25,000. The STT rate for equity-oriented mutual funds at the time of redemption is 0.001% of the transaction value. STT = 0.001% * INR 25,000 = INR 2.5

In this case, the investor would pay INR 2.5 as STT when redeeming the mutual fund units.

It’s important to note that STT on mutual fund transactions is applicable only for equity-oriented mutual funds and not for debt-oriented mutual funds or other types of funds. Additionally, the STT rates and rules for mutual fund transactions may be subject to change, and it is advisable to refer to the latest guidelines and regulations issued by the relevant authorities.

Impact of Securities Transaction Tax on Investors

STT affects investors in various ways. Though small, the tax burden can accumulate over time, particularly for frequent traders. It may impact the overall profitability of short-term trades and discourage speculative activities. On the positive side, STT promotes stability in the market by discouraging excessive volatility and encouraging long-term investment strategies.

Impact of Securities Transaction Tax on the Market

The introduction of STT has significantly impacted the Indian securities market. It has increased transparency, reduced tax evasion, and enhanced the market’s credibility. The tax revenue generated through STT has contributed to the government’s fiscal resources, enabling public expenditure and infrastructure development.

A. Cost Implications for Investors: STT adds to the overall transaction cost for investors. The tax burden affects short-term and long-term investors, reducing their net returns. The impact is more significant for frequent traders or those dealing in high volumes.

B. Liquidity and Trading Volume: STT can impact market liquidity and trading volumes. Higher tax rates may discourage trading activities, potentially reducing the liquidity in the market. It can also affect investor sentiment and participation.

C. Impact on Market Dynamics: The presence of STT influences trading strategies and investment decisions. Traders and investors consider the tax implications while determining their entry and exit points, potentially altering market dynamics and volatility.

Exemptions under Securities Transaction Tax

Certain transactions are exempted from Securities Transaction Tax (STT). For example, intraday equity trading, delivery-based equity trading, and transactions undertaken by mutual funds while buying or selling units of their schemes are exempt from STT. These exemptions are designed to promote long-term investment and to support the growth of the mutual fund industry.

a) Exempted Transactions: Certain transactions are exempted from STT, such as transactions in government securities, corporate bonds, and mutual fund transactions where STT is already paid.

b). Concessions for Market Makers and Institutions: Market makers and institutional investors enjoy certain concessions and exemptions to facilitate their role in market-making and liquidity provision.

Compliance and Reporting of STT

a) Payment of STT: As per the transaction type, the responsibility for paying STT lies with the buyer or seller. Stockbrokers facilitate the collection of STT and ensure its payment to the authorities.

b) Reporting STT in Tax Returns: STT paid can be claimed as a deduction or offset against capital gains while computing tax liabilities. The investors and traders must report the details of STT paid accurately in the income tax returns.


Securities Transaction Tax (STT) is vital in discouraging speculative trading and promoting long-term investment strategies. While STT may impose a tax burden on investors, it enhances market stability and contributes to the overall growth of the Indian economy. Understanding the nuances of STT is crucial for investors to make informed decisions and navigate the Indian securities market effectively.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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