What Is sTT charges?

As the trading started increasing in the stock exchanges, the Government of India began to face the problem of tax evasion. The trades and investors wanted to keep their profit from the trade private. To overcome this, the government introduced the STT in 2004. 

What Is STT Charges ?

The STT charges full form is Securities Transaction Tax; it is the tax applied on the sale and purchase of securities listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The Securities Transaction charge is a direct tax that is sanctioned by the central government. 

This tax is levied on both the buyer as well as the seller. The tax rate depends on the segment in which the trade takes place. The tax rate of the various segments is different. The amount of the tax is paid by the stock exchange directly, making the traders comply with the taxation regulations very easily.

The Securities Transaction Tax helps the government to increase their revenue and also helps in the regulation of the stock market.

Why was Security Transaction Tax Introduced?

In 2004, the Finance Minister at the time, P. Chidambaram introduced the Securities Transaction Tax (STT) in his Union Budget Speech. This tax was introduced in the Finance Act of 2004 because the traders’ income was not recorded as income, and they could avoid paying taxes. After the implementation of STT, there was more transparency, and the profits and losses from trading were being taxed.  

Securities That Are Eligible For STT Charge

The Securities Contract Regulation Act of 1956 describes the securities on which this tax is levied. These include:

• Equity Shares, Bonds, Debentures, Scrips or any other marketable securities.
• Derivatives
• Government Securities that are like equity in nature
• Equity Mutual Funds 
• Interest that is earned through securities
• Units issued by any collective investment scheme

All of the above points come under the securities transaction tax levied on the securities traded in the stock exchanges. The transactions made during the off-market are not charged with STT. 

Features of Security Transaction Tax

The STT collects tax from the financial markets, and it has some distinct features as well. Some of these features are:

• The central government determines the STT Charges.
• The tax applies only to the transactions made through the stock exchanges.
• The tax is levied on the sell transactions of futures and options
• The STT on options is based on the premium traded value
• The STT on futures is based on the actual traded price
• The tax rates are different for every security

Impact of Security Transaction Tax on Investors

Some of the ways in which the securities transaction tax affects investors are:

• The Securities Transaction charge increases the cost of trading, reducing the investors’ returns.
• The security transaction tax also impacts the decisions made by the investor as he will choose to trade in the securities with a lower rate of STT.
• The tax may also reduce the liquidity in the financial market as the investors may choose long-term investments or not trade at all. 
• The valuation of the securities also gets affected as the trader wants to pay less for the securities which have a higher STT rate.
• The clearing member pays the amount of tax as a sum of all the traders.
• There is a different rate for all the segments, and the trader has to pay for whichever segment he trades in.
• The STT is a direct tax that the central government collects.

Security Transaction Tax Rates in India

The tax rates charged on the securities transaction are the same for all traders and investors whether they choose any broker. The table below shows the STT charges in different segments applicable w.e.f. 1st April 2023.

Segment	Rate (%)
NSE
STT ( Delivery)	0.10%	On Turnover
STT ( Intraday On Sale Side)	0.02500%	Sale Side Turnover
F&O
STT (Sale Side) Future	0.0125%	Sale Side Turnover
STT (Sale Side) Option On Premium	0.0625%	Sale Side Turnover
MCX
CTT (Sale Side) Future	0.010%	Sale Side Turnover

How To Calculate STT ?

With the help of the following examples, let us understand how to calculate the STT charges for the different segments.

STT Charges in Intraday

Mr. A is an investor who invests in the Equity Market and makes a trade in Intraday. He buys 500 shares of SBI at Rs 450 per share and then sells it on the same day at Rs 500 per share. The rate for Intraday is 0.025% 

The tax applicable here is – 0.025% * 500 * 500 = Rs 12.50

To know more about Intraday trading and how to trade in it, read our blog – How To Make Money In Intraday Trading.

STT Charges in Futures

Mr B buys ten lots of a company’s futures at Rs 2,000 and then sells them at Rs 2,100. The lot size is of 50 shares, and the rate applicable in futures is 0.0125%.

The tax, in this case, will be – 0.0125% * 10 * 50 * 2100 = Rs 131.25.

STT Charges For Delivery

Mr C Buys 200 shares of Reliance Industries at Rs 1,000 on 24th April and sells them for Rs 1050 on 27th April. The STT is charged for both the buy and sell sides in a delivery trade. The rate of tax for delivery is 0.1%

The tax, in this case, would be –  Buy Side – 1000 * 200 * 0.1% = Rs 200 and, 

Sell Side – 1050 * 200 * 0.1% = Rs 210

The total tax that Mr C pays is Rs 410 (200+210)

Concluding Remarks

The security transaction tax is an excellent source of revenue for the government. It is deducted from the source itself, leading to less tax evasion. It is charged on the transactions that occur in NSE and BSE. The STT is a direct tax that impacts the traders as it increases the cost of transactions. We at Lakshmishree Investments help our clients in every way possible and have a professional team who guides traders and investors in making financially sound decisions.

Like the term STT, some other terminologies are used in the share market, which we discussed in our previous blogs.

What is CMP in the Stock Market? – This stands for Current Market Price.

What is LTP in the Stock Market?- This stands for the Last Traded Price; read more about it.

Frequently Asked Questions