There are several charges that an investor has to bear while buying or selling investments from their Demat account. The most popular ones are brokerage charges, Goods and services tax (GST), transaction tax, etc. But the one tax that investors are less aware of is Securities Transaction Tax (STT).
In this article we will explore everything about securities transaction tax in detail. So, let’s begin.
What is Securities Transaction Tax (STT)?
Securities Transaction Tax (STT) is levied on every purchase and sale of securities that are listed on the stock exchanges. It is a tax payable by investors and traders to the central government and therefore is categorised as a regulatory charge.
Why was Securities Transaction Tax Introduced?
Before the introduction of STT, investors used to evade capital gain tax by showing fictitious losses on their investments. To avoid such practices, the Government of India introduced Securities Transaction Tax (STT) in the Union Budget 2004. Through this practice, an investor will not be able to avoid paying taxes as it is levied at source.
While STT was introduced, long term capital gain tax was abolished and was reintroduced in 2019. The STT is charged on stocks, derivatives and equity mutual funds.
It is important to note that broker collects STT when you execute a trade. It is applied on the value of transaction placed by the traders or investor. You can look at a clear break-up of taxes in the contract notes issued by your broker.
How is STT Charged?
For Cash Market (EQ) Transactions:
STT on Intraday Trades
STT is charged on the sell side of the transaction at 0.025%. Let us understand this with an example:
A trader buys 100 shares of Tata Chemicals Ltd. for Rs 1,000 each at 9:30 AM on Monday and sells them off at Rs 1,005 at 3:15 PM. Here, STT will be Rs 25.13 calculated as (Rs 1,005 x 100 x 0.025% = Rs. 25.13)
STT on Delivery Trades
STT is charged on both legs, i.e. Buy & Sell side of the delivery transaction. Let us understand this with an example:
Trader buys 100 shares of Tata Chemicals Ltd. at Rs 1,000 each on 27th October 2021 and sells the same at Rs 1,010 on 30th October 2021. STT will be Rs. 100 on the buy side calculated at 0.1% on (Rs 1,000 x 100 x 0.1% = Rs. 100) & Rs. 101 on the sell side calculate at (0.1% on Rs. 1,010 x 100 x 0.1% = Rs.101). So the total STT will be Rs 201.
An important benefit of the STT is that, if STT is paid on transactions previously, capital gains on securities transactions gets charged at a preferential rate.
- In case of short term capital gains, a tax of 15% is applicable.
- In case of long term capital gains, the tax rate is 0%. This is long terms capital gains is exempt from tax for transactions where STT is previously paid.
For Future & Option Market Transactions
STT on Futures Transactions
STT will be charged on the sell side turnover of the transaction, regardless of whether the trade is Intraday or Positional. The current STT rate is 0.01%.
Let us understand this with an example. A trader sells one lot of Nifty on 1st October at 17,500 . His total volume comes to 17,500 x 50 =Rs. 8,75,000. On the same he has to pay Rs. 87.5 as STT calculated as (0.01% x Rs.8,75,000).
STT on Options Trades
On Selling Options: Similar to futures, STT is payable only on the premium value on the sell side of the transaction. Let us understand this with an example.
A trader sells one lot of call on the Nifty at strike Price 18,600 for Rs 715 each. Hence, STT charged will be Rs 26.82 calculated as 50 (Lot size of Nifty) x Rs 715 x 0.05%.
If you are wondering how much STT you will have to pay on your transactions, then refer to Samco’s brokerage calculator. Here you will get a detailed break-up of which and how much taxes you will have to pay.
Click here to open our brokerage calculator.
Check out the Charge List to know more about all the charges applicable while trading in the Indian stock markets.The same way STT is applicable for trading in securities, Commodity Transaction Tax is applicable for trading in non-agro commodity derivatives. So, don’t forget to read the next article on commodity transaction tax by clicking here.
I have traded share with intraday upto 1 crore rs in a year is there any limitations for individuals?
Excellent article in very simple language. From long time I was searching how to enter in stock market as a beginner. Now I can easily go with this helpful article .
Thanks a lot,
Hi its good blog, I have 1 question. My gain out of my share is considered as income and how much the tax has to be paid for that. Say I got 1000 out of my shares by selling how much the income tax has to be paid
Calculatuon of my transaction charges for intraday trades are wrongly calculated. Addition of charges are wrongly computed. Pl rectify and deposit back extra deducted amount to my trading account.
We’re sure that no extra amount is deducted from your account. Kindly reach out to us on +22 2222 7777 & use extension 4 to connect with our Funds department, they shall assist you with the queries accurately.
For any other queries/information, raise a ticket on https://www.samco.in/support, our executive shall assist you on the same.
Looking forward to serving you soon.
Thanks & regards,