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STT (Securities Transaction Tax) is a direct tax levied by the Government of India on transactions in specified securities executed on recognised stock exchanges. Governed by Chapter VII of the Finance Act, 2004, STT is collected by the exchange (for shares and derivatives) or the AMC (for mutual fund redemptions) at the point of transaction and remitted to the Central Government.
Statutory Basis
STT was introduced by Finance Act 2004 (Budget 2004-05) to replace state-level securities purchase/sale taxes with a uniform central levy. The schedule to Section 98 of the Finance Act 2004 specifies the taxable securities transactions, the person liable, and the applicable rate.
Current Rates (FY 2024-25 onwards, post Finance Act 2024)
| Instrument / Transaction | Taxable event | Rate |
|---|---|---|
| Equity delivery -- buy | Purchase | 0.1% of value |
| Equity delivery -- sell | Sale | 0.1% of value |
| Equity intraday -- sell only | Sale | 0.025% of value |
| Futures -- sell | Sale of contract value | 0.02% |
| Options -- sell premium | Sale | 0.1% (raised from 0.0625% by FA 2024) |
| Options -- exercise | Settlement | 0.125% |
| Equity MF redemption | Redemption by investor | 0.001% of NAV x units |
| ETF -- sell on exchange | Sale | 0.001% |
Source: Finance Act 2004, Schedule to Section 98; Finance Act 2024 (options rate revision).
Why STT Matters for Capital-Gains Tax
Sections 111A and 112A of the Income Tax Act, 1961 grant concessional STCG (20%) and LTCG (12.5% above Rs 1.25 lakh) rates only where STT has been paid on the transaction. For all exchange-traded equity, STT is collected automatically, satisfying this condition. Off-market transfers (e.g., gifts between demat accounts without exchange routing) do not attract STT and therefore do not qualify for Sections 111A/112A rates.
STT Deductibility
STT is not deductible in computing capital gains under Section 48 of the Income Tax Act. However, for taxpayers who characterise equity trading as a business, STT is deductible as a business expense under Section 36(1)(xv).
Source: Section 36(1)(xv), Section 48, Income Tax Act 1961; CBDT Circular No. 98/2018.
Practical Impact: Intraday vs Delivery
Delivery traders pay STT on both buy (0.1%) and sell (0.1%) and receive capital-gains tax treatment (20% STCG or 12.5% LTCG). Intraday traders pay only a sell-side STT (0.025%) but their profits are taxed as speculative business income at slab rates -- not at capital-gains rates.
Related terms: LTCG, STCG, Capital Gains Tax on Stocks, Tax on Investments in India.