Securities Transaction Tax (STT) is a tax deduction being levied on all your equity transactions.
STT is applicable on every purchase or sale of securities listed on the Indian stock exchange at rates prescribed by the Central Government from time to time. This includes equity shares, derivatives, equity oriented funds and equity oriented mutual funds. The deduction is been imposed to ensure that gains arising from securities transaction are taxed at source, thus preventing individuals from evading capital gains tax.
STT is a turnover based tax, introduced in the year 2004. That is, instead of taxing a profit, STT is a tax on the value of shares bought and sold on a stock exchange (irrespective of your profit or loss). STT is levied on the total volume of transaction of shares, units of mutual funds(MFs) or derivatives.
According to the “securities” defined under section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA), STT would be applicable for securities like:-
- 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.
- Units or any other instrument issued by any collective investment scheme to the investors in such schemes.
- Security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
- Government securities.
- Such other instruments as declared by the Central Government.
- Rights or interest in securities.
- Equity oriented mutual funds
Note : As per of the Securities Contracts (Regulation) Act, 1956, STT is not applicable for any off-market transaction.
STT On Capital Gain
If you are selling the shares after 12 months, then it comes under long term capital gains and you need not have to pay any tax on that gain. But if you are selling the shares before 12 months then you have to pay short term capital gains @15% flat on the gain.
The short term capital gain arising from the sale of shares or equity oriented mutual fund units, on which STT has been applied, would be taxed at a concessional tax rate of 15%(plus surcharge and education cess).
Long term capital gains, of such similar transactions which have been subject to STT, is totally exempt from tax.
For all transactions for which STT is not applied, the long term capital gains tax is at 10% without indexation and 20% with indexation. In such cases the short term capital gains tax is according to the normal progressive slab rates.
At the end of the year, you can ask your broker to give you a certificate of the STT that you have paid through the year. You can use this amount to deduct from your short term capital gains and get a tax credit.