Securities Transaction Tax(STT)

STT is a financial transaction tax that functions similarly to tax collected at source (TCS). The Securities Transaction Tax (STT) is a direct tax levied on all purchases and sales of securities traded on India’s regulated stock exchanges. The Securities Transaction Tax Act (STT Act), which outlines the categories of taxable securities transactions that are subject to STT, governs the Securities Transaction Tax (STT).

Tax on Securities Transactions

Gains from securities such as shares, options, and futures trading on the domestic stock exchange are subject to a securities transaction tax. It is a direct tax levied and collected by the federal government.

Chidambaram, the former Finance Minister, proposed the Securities Transaction Tax (STT) in 2004. This tax was enacted to prevent capital gains tax avoidance. As the name indicates, a securities transaction tax is imposed on the value of securities (except commodities and currency). After several protests by brokers and members of the trading community in 2013, the government was forced to reduce the rate of taxation for STT.

India’s Securities Transaction Tax Rate

The tax rates for various securities are shown in the table below. The government determines the STT rate, which is based on the kind of security and whether the transaction is a sale or a buy. STT guarantees that inflows of speculative funds are limited in any market, in addition to all the benefits it provides in terms of transparent and timely payment of tax on trading instruments.

Characteristics of the Securities Transaction Tax

STT is a simple direct tax that is simple to calculate and implement. Some of STT’s most distinguishing qualities are listed below.

The STT charge applies to all sell transactions, including options and futures.

For STT purposes, each future transaction is valued at the actual transacted price, whereas each option trade is valued at the premium.

The sum of all STT taxes owing by trading members under him determines a clearing member’s STT liabilities.

Securities transaction tax Act

STT is a balanced budget amendment that functions similarly to tax collected at source (TCS). The Securities Transaction Tax (STT) is a direct tax levied on all purchases & sells of equity securities on India’s regulated stock exchanges. The Securities Transaction Tax Act (STT Act), particularly outlines the categories of taxable securities transactions that seem to be subject to STT and governs the Securities Transaction Tax (STT).

Taxable securities include equities, and derivatives, including units of equity-oriented mutual funds. Unlisted shares sold as part of an initial public offering (IPO) and later listed on stock markets are also included.

STT-eligible securities

The Securities Transaction Tax Act does not define the term “securities” (STT Act). The SST Act, on the other hand, provides for the use of definitions from the Income Tax Act of 1961 or the Securities Contracts (Regulation) Act of 1956. The term “securities” is defined as follows in the Securities Contracts (Regulation) Act:

• Any incorporated corporation or other body corporate’s shares, stocks, scrips, bonds, debenture stock, debentures, or other marketable securities, or securities of a similar character.
• Derivatives
• Collective investment systems may issue units or other instruments.
• Debt instruments that have been securitized
• Government securities with an equity component
• Mutual funds that invest in stocks, such as the Equity Linked Savings Scheme.
• Securities rights or interests

A securities transaction tax is direct or indirect

In the Union Budget of 2004, the Security Transaction Tax (STT) was first established. After it was discovered that there were incidents of capital gains tax avoidance through genuine and frictional losses, the STT was formed. 

As a result, STT was created as a means of achieving the true potential of stock market taxation. While long-term capital gains (LTCG) tax was excluded, STT was implemented to ensure that no tax avoidance took place. Then, in 2019, LTCG made a comeback as well.

In essence, STT is an indirect tax placed on a broker rather than directly on the investor or trader. The broker then collects the money from his or her clients and deposits it with the government.

Conclusion:

STT is a transaction tax that functions similarly to tax collected at source (TCS). The Securities Transaction Tax (STT) is a direct tax on all purchases and sales of securities transacted on India’s regulated stock exchanges. The Securities Transaction Tax Act (STT Act), regulates the categories of taxable securities transactions that are subject to STT and governs Securities Transaction Tax (STT).

Taxable securities include equities, derivatives, and equity-oriented mutual fund units. Unlisted shares sold as part of an initial public offering (IPO) and later listed on stock exchanges are included as well.