What Is STT (Securities Transaction Tax)? Meaning, Rates

Securities Transaction Tax (STT) is a direct tax levied by the Government of India on the purchase and sale of securities traded on recognized stock exchanges. Introduced in 2004, STT plays an important role in India’s taxation system by ensuring transparency in capital market transactions and reducing tax evasion.

If you invest or trade in shares, equity mutual funds, derivatives, or other listed securities, understanding STT is essential. This article explains what STT is, how it works, applicable rates, who pays it, and how it affects investors and traders.

Table of Contents

What Is Securities Transaction Tax (STT)?

Securities Transaction Tax is a tax charged on every taxable securities transaction executed through a recognized stock exchange in India. The tax is collected by the stock exchange or intermediary and then deposited with the central government.

STT applies mainly to:

Equity shares
Equity-oriented mutual funds
Derivatives (futures and options)
Exchange-traded funds (ETFs)

Unlike income tax, STT is not calculated annually. It is charged at the time of each transaction, whether you make a profit or a loss.

Why Was STT Introduced?

Before STT, tracking capital market transactions for taxation was complex and prone to tax evasion. To simplify the system, the Indian government introduced STT with the following objectives:

To ensure easy and transparent tax collection
To reduce tax evasion in capital markets
To replace complex capital gains tracking for short-term traders
To bring uniformity in securities taxation

STT made tax collection automatic, as it is deducted directly during the transaction.

Who Has to Pay STT?

STT is payable by:

Equity investors
Intraday traders
Futures and options traders
Mutual fund investors (equity-oriented funds)

The tax is usually charged to either the buyer, the seller, or both, depending on the type of transaction. Investors do not need to pay STT separately, as it is automatically included in brokerage charges.

STT Rates in India

STT rates vary based on the nature of the transaction. Below are commonly applicable STT charges:

Equity Delivery (Buy & Sell)

0.1% on the buy side
0.1% on the sell side

Intraday Equity Trading

0.025% on the sell side only

Futures Trading

0.01% on the sell side

Options Trading

0.0625% on the sell side (on option premium)

Equity Mutual Funds

0.001% on sale of units

These rates are subject to change by the government, so investors should always check the latest notifications.

How Is STT Calculated?

STT is calculated as a percentage of the transaction value. For example:

If you buy equity shares worth ₹1,00,000 for delivery:

STT on buy = ₹100
STT on sell (assuming same value) = ₹100

Total STT paid = ₹200

This amount is automatically deducted by the broker and shown in your contract note.

Is STT Refundable?

No, STT is not refundable under any circumstances. Even if you incur a loss in trading or investing, the STT paid cannot be claimed back.

However, for business traders, STT paid on non-delivery transactions (like intraday or F&O) can be claimed as a business expense while calculating taxable income.

STT and Capital Gains Tax

STT has a direct connection with capital gains tax:

Short-Term Capital Gains (STCG) on equity shares and equity mutual funds are taxed at a fixed rate (currently 15%) if STT is paid.
Long-Term Capital Gains (LTCG) above the exemption limit are taxed at 10% if STT is paid.

If STT is not paid, gains may be taxed under different provisions, often at higher slab rates.

Thus, paying STT makes capital gains taxation simpler and more predictable.

Advantages of STT

STT offers several benefits to both the government and investors:

Simple and automatic tax collection
Reduces paperwork for investors
Encourages transparency in stock market transactions
Helps curb black money and tax evasion
Provides clarity in capital gains taxation

Because STT is charged upfront, investors do not have to worry about tracking every transaction for tax purposes.

Disadvantages of STT

Despite its benefits, STT has some drawbacks:

Increases overall transaction costs
Affects frequent traders and scalpers more
Payable even when trades result in losses
Can reduce profitability for high-volume traders

For long-term investors, the impact of STT is minimal, but active traders may feel the cost more significantly.

Difference Between STT and Stamp Duty

Many investors confuse STT with stamp duty. While both are transaction-based charges, they are different:

STT is a central government tax
Stamp duty is levied by state governments
STT is applied mainly on securities transactions
Stamp duty applies on contract value at the time of purchase

Both charges appear separately in brokerage statements.

Conclusion

Securities Transaction Tax (STT) is an integral part of India’s financial market system. It simplifies tax collection, promotes transparency, and ensures that capital market transactions remain within the formal tax framework. While it slightly increases transaction costs, its benefits in terms of compliance and ease outweigh the drawbacks for most investors.

Whether you are a long-term investor or an active trader, understanding STT helps you better evaluate your trading costs and tax liabilities. Staying informed about STT rates and rules can help you make smarter and more tax-efficient investment decisions.