Security Transaction Tax (STT)

  • Security Transaction Tax (STT) was first introduced in the Union Budget 2004.
  • The idea of STT was born after it was found that there were cases of capital gains taxes evasion through real and fictitious losses. Thus, STT came into being as a way of realizing the actual potential of taxing the stock markets. So, while long-term capital gains (LTCG) tax was exempted, STT was introduced to make sure there was no tax evasion. And then, LTCG too made a comeback in 2019.

  • In essence, STT is an indirect tax and is imposed on a broker rather than the investor/trader directly. The broker, in turn, collects it from its clients and deposits it with the government.
  • An investor or trader has to pay the tax no matter whether she makes a profit or not.
  • STT is currently imposed on equity and derivative transactions.
  • Futures and options transactions come under the purview of STT on the sell-side. Understandably, the rates on futures and options transactions are comparatively lower than on direct equities since such contracts are valued notionally.
  • Sale of equity funds also attracts STT. This means that even when you redeem equity funds, you are liable to pay STT on the value of the sale.

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