What is STT- Securities Transaction Tax: ? What are STT Charges?

26 Mar 2021by Pradeep U

What is STT- Securities Transaction Tax: ? What are STT Charges?

Some of the common questions commonly asked by equity investors, especially first-time investors are:

“What is STT?” 

“What is Securities Transaction Tax?”

"What are STT charges?"

"What is STT rate?"

"What is STT rate in India?"

"What is STT rate on intraday trading?"

In this article let's take a detailed look at ‘What is STT?’ as well as the answers to most commonly related questions asked by investors.

What is STT or Securities Transaction Tax?

Securities transaction tax (STT) refers to a regulatory tax levied at the time of purchase and sale of securities listed on Indian stock exchanges. Governed by the Securities Transaction Tax Act (STT Act), STT is applicable for buying or selling transactions on all securities including equity, derivatives, unit of equity-oriented mutual funds, unlisted shares sold under an OFS (offer for sale) to the public included in initial public offering (IPO) and subsequently listed on the stock exchanges in India.

The rate at which STT is chargeable is decided by Government and may be subject to revision or modifications from time to time if necessary. Collection of STT is mandatory by a recognised stock exchange or by the prescribed person in the case sale of equity and balanced mutual funds or the lead merchant banker in the case of an initial public offer, and has to be subsequently paid to the government by the 7th of the next month. In case failure of the above-mentioned entities to collect the STT, they still have an obligation to make a payment for the equivalent amount of tax to the government by 7th of the next month. Failure on part of the above entities to do so may result in levy of a penalty and interest also.

Introduction of STT

STT was first introduced in Union Budget 2004 and came into effect w.e.f October 1, 2004. The objective behind the introduction of STT was to curb the evasion of capital gains tax after the discovery of cases where capital gains evasions had taken place through real and fictitious losses.

How is STT charged?

Application of STT charges vary for different transactions.

First let’s take a look at STT for transactions in the cash market

What is STT rate on intraday trading?

In case of intraday trading, STT is charged on the sell side of the transaction at 0.025%.

Let ‘s understand this with the help of an example:

A person buys 100 shares of XYZ company for Rs.100 each and sells them off at Rs.110 on the same day, the STT applicable in this case would be Rs. 2.75 (Rs.110*100*0.025%=Rs.2.75)

What is STT rate on delivery trades?

In case of delivery trades, STT is charged on both sides, i.e., on buying as well as selling.

Let ‘s understand this with the help of an example:

A person buys 100 shares of XYZ company for Rs. 100 each and sells them after 3 days for Rs. 110.

STT charged on the buying side would be Rs.10 (Rs.100*100*0.1%=Rs.10) whereas STT charged on the selling side would amount to Rs.11 (Rs.110*100*0.1%=Rs.11). So, in this case the total STT payable by the person would amount to Rs.21.

What is STT rate on future and option trades?

In case of future and options trades, the STT rate is applicable at 0.01 % on the sell side turnover.  

Let’s understand this with the help of an example:

A person buys 1 lot of XYZ stock Futures (lot size of 25) at Rs. 2000 and sells it at Rs. 2400 then the STT chargeable would be Rs. 6 (Rs.2400*0.01%*1*25 = Rs. 6)

Now that you have understood the meaning of STT charges it is equally important to understand that though the STT charge may look small when you look at a single transaction, when you look at multiple transactions the amount becomes huge.

Remember the proverb 'Small drops of an water make an ocean'?

In this case what it means when one indulges in frequent buying even a small STT charge of say Rs. 10 per transaction would mean an additional cost of Rs. 10,000 if a person indulges in 1000 trades. 1000 trades is no big feat as many traders who indulge in frequent buying or selling on a regular basis may exceed even that in just one year.

Apart from STT there are various other charges too applicable on buying and selling of shares and in the cash segment as well as futures and option trades. These include exchange txn charges, clearing charges, GST, SEBI charges and stamp duty charges.

Many investors often overlook these charges due lack of awareness and make the fatal mistake of only looking at their profits or losses after deducting brokerage, without realizing that these charges are significantly eating up their profits. 

That's why long term investment in fundamentally sound stocks is one of the best ways to create wealth from the stock market. Click here to get started with a portfolio of 20-25 fundamentally sound stocks.

 

 

 

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