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Securities Transaction Tax (STT) is the tax payable on the value of taxable
securities transaction. STT was introduced in India by the 2004 budget and is
applicable with effect from 1st October 2004.

Securities Transaction Tax is a neat and efficient way of computing tax on profit
incurred from the sale of securities, as it virtually nullifies the scope of tax
avoidance. Securities Transaction Tax is applicable at different rates on the value
of the taxable securities transaction. Taxable securities transaction, payable by both
the buyer and the seller, refers to any transaction of securities entered into in a
recognized Stock Exchange in India (on or before the date on which Chapter VII of
the Finance (No. 2) Bill, 2004 was introduced).

Definition of Securities
As per section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA),
Securities includes to:

u? Shares, scrips, stocks, bonds, debentures, debenture stock or other

marketable securities of a like nature in or of any incorporated company or
other body corporate;
u? erivative instruments (like forwards/futures/options on indices, stocks,
commodities etc.)
u? ÿnits or any other instrument issued by any collective investment scheme to
the investors in such schemes;
u? Security receipt as defined in section 2(zg) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002;
u? overnment securities;
-
t
 is covered by Securities?

Securities definition is as per section 2(h) of the Securities Contracts (Regulation)

Act, 1956, but for our purpose, let¶s just simply say Securities mean Equity Shares
and Equity erivatives (i.e. Futures and Options). Full definition of Securities is
given in Appendix, for information.

-
t
re t

be tr
ns
ctions?

Purchase and Sale of securities through a recognised stock exchange in India. STT
is not applicable on off-market transactions.

-
t r
te is STT p
y
be?

STT is applicable at different rates depending upon the security (whether equity or
derivative) and the transaction (whether purchase or sell). Current STT rates are
given below. Note that Service Tax, Surcharge and Education Cess are not
applicable on STT.

STT
ppic
be for Equity Tr
ns
ctions

elivery Transactions

Purchase: 0.125% of Turnover i.e. (Number of Shares * Price)

Sell: 0.125% of Turnover i.e. (Number of Shares * Price)

Intra-day Transactions

Purchase: NIL
Sell: 0.025% of Turnover i.e. (Number of Shares * Price)
STT
ppic
be for Deriv
tive Tr
ns
ctions

Future Transactions

Purchase: NIL
Sell: 0.017% of Turnover i.e. (Number of Lots * Lot Size * Price)

Option Transactions

Purchase: NIL at the time of purchase of option. However the purchaser has to pay
0.125% of the Settlement Price i.e. (Number of Lots * Lot Size * Strike Price), in
case of option exercise

Sell: 0.017% of Premium

Summ
ry of t e STT r
tes is given in t e t
be beow:

 
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—ncome T

nd STT

Taxation of profit or loss from securities transactions depends on whether the

activity of purchasing and selling of shares / derivatives is classified as investment
activity or business activity. Treatment of STT also depends upon whether the
income from these securities transactions are included under the head ³Income
from Capital ains´ or under the head µProfits and ains of Business or
Profession¶.

Scenario 1: µIncome from Capital ains¶

This refers to the scenario where the assessee is either Salaried or is engaged in
some other business or profession and trading in securities is not the main line of
business. In such cases gains or losses from securities transactions are taxed under
the head ³Income from Capital ains´. ains or losses are subject to Short Term
Capital ains (STC) or Long Term Capital ains (LTC) tax depending upon
the period of holding, i.e., if the holding period is less than 1 year, gains are
classified as STC and if the holding period is equal to or greater than 1 year,
gains are classified as LTC. Any equity share, which has been sold through a
recognised stock exchange and on which STT has been paid, is entitled to
exemption from LTC under Section 10 (38) of the Act. Similarly, in case of
STC of such shares, the gains shall be taxed only at 15%, plus surcharge and
education cess under section 111A of the Act.

Scenario 2: µProfits and ains of Business or Profession¶

This refers to the scenario where main business of the assessee is trading in
securities. In such cases the gains or losses are classified as business income,
which is taxed at the regular rate of income-tax. STT paid in respect of taxable
securities transactions entered into in the course of business shall be allowed as
deduction under section 36 of the Income-tax Act. ÿntil 31st March 2008, the
amount of STT paid was allowed as rebate under section 88E of the Income-tax
Act. However, with effect from 1st April 2008, rebate available under section 88E
has been discontinued.