What is securities transaction tax (stt): Securities transaction tax is levied on the purchase and sale of securities traded on the stock exchange. It is also called STT in short .
In the Union Budget 2004, securities transaction tax was introduced, which was presented by P Chidambaram.
The reason behind the introduction of Security Transaction Tax was that many people did not report the transactions of buying and selling securities in their income tax returns. Due to which the government had to lose a lot of tax.
Due to the introduction of STT, now the government started keeping an eye on all the transactions of securities . This has made it possible to prevent tax evasion.
Also Read: What is TDS and why is it deducted?
In our today’s article (what is securities transaction tax stt) we will discuss about what is securities transaction tax and what are its provisions.
What is Securities Transaction Tax?
STT is a tax that is levied on the buying and selling of securities. However, it will be imposed only when the securities are being bought or sold on a stock exchange.
STT will not be levied on securities bought or sold in the open market. Also, it is not imposed on commodities or currency.
Securities transaction tax is levied on the value of any security. That is, the price at which securities are bought and sold.
The STT rate is determined by the central government, which varies by securities. These rates are also changed from time to time by the Central Government.
The provision of securities transaction tax is also similar to TDS , STT is imposed as soon as a transaction of securities takes place.
Securities transaction tax is levied on which securities?
The securities contract (regulation) act 1956 describes the securities on which securities transaction tax will be levied. If these securities trade on the stock exchange, then STT will be levied on them.
According to this act STT will be imposed –
- On shares, bonds, debentures, debentures stocks or other similar marketable securities,
- Units of business trust,
- Derivatives
- equity oriented mutual fund units,
- Government Equity Nature’s Securities,
- Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act 2002, Section 2 (zg) of the Defined Security receipt,
- Rights and Interest in Securities
- Unlisted shares sold to the public in the initial public offer (IPO).
At what rate will the securities transaction tax be levied?
STT is levied on different securities at different rates.
| Taxable securities | Transaction type | stt rate | Who will be charged |
| Delivery based equity | purchase | 0.10% | purchaser |
| Delivery based equity | sell | 0.10% | seller |
| derivatives future | sell | 0.01% | seller |
| derivatives option | sell | 0.05% | seller |
| Derivatives option | sell | 0.125% | purchaser |
| equity mutual fund (closed ended) | sell | 0.001% | seller |
| equity mutual fund (open ended) | sell | .025% | seller |
| equity mutual fund intraday (non delivery) | sell | .025% | seller |
By whom is the collection and recovery of STT done?
It is the responsibility of the collection of securities transaction tax on the stock exchange in which the securities are bought and sold. If the stock exchange does not collect STT on any transaction, then interest and penalty will be imposed on it.
Similarly, on selling units of a mutual fund, there is a responsibility to impose STT of a mutual fund. And in Initial Public Offer (IPO) this responsibility is that of the lead merchant banker.
Like TDS , it has to be deposited to the government after deducting securities transaction tax. After the month in which the collection of stt was done, it has to be deposited by the 7th of the following month. Otherwise both interest and penalty will be imposed.
After collecting securities transaction tax, returns are also required to be filed by the stock exchange or mutual fund. This return form no. 1 (in case of stock exchange) and form no. 2 (case of Mutual Fund).
Interest and Penalty –
If securities transaction tax is collected and is not deposited to the government, then simple interest will be levied at the rate of 1%.
Penalty – This will be levied in addition to tax and interest.
| If STT is not collected by stock exchange or mutual fund | Equal to 100% of stt not collected |
| If it is not submitted to the government on time after collecting STT | rs 1000 per day, until deposited |
| Returns are not submitted by stock exchange or mutual fund | rs 100 per day, until the return is submitted |
| Stock exchanges or mutual funds do not respond to notices | rs 10,000 per day |
Income Tax and Security Transaction Tax –
Securities transaction tax is levied on whatever securities are traded on the stock exchange. Transactions of securities are reported in income tax returns, so that these transactions can be taxed.
But, the biggest question comes whether the same transaction will be taxed twice?
So the answer will be no, because the STT that is levied on the transaction of securities is exempted in the Income Tax Act.
To understand how to get STT exemption in income tax, first you need to know whether you are reporting the income of securities in the capital gains head or in the business or profession head.
On reporting the income of securities to the capital gains head –
If there is a profit by selling securities, then it is separated into long term or short term. Short term capital gains will be taxed at the rate of 15%.
But, if there is a long-term capital gain, then the tax will be levied only if it is more than 1 lakh. If it is more than 1 lakh, then tax will be levied at the rate of 10% and if it is less than 1 lakh, no tax will be levied.
No exemption is given for doing an income show in the capital gains head of STT.
On reporting securities in the income business or in the head of profession –
If the income of the trading is being reported in the business or profession head, then Section 36 of the STT can be discounted as a business inquiry.
