Monday, June 13, 2011

What is Securities Transaction Tax (STT)

Securities Transaction Tax (STT)

 Securities Transaction Tax (or STT in short), is the tax deduction that is applied to all your equity transactions. Introduced in the 2004 Union Budget by the then Finance Minister Mr. P Chidambaram, the deduction is to ensure that gains arising from securities transaction are taxed at source, thus preventing individuals from evading capital gains tax. So, what is the applicable STT and when do you pay it? Read on to know it all.

When Does One Pay STT?

Securities Transaction Tax is levied on every purchase or sale of securities that are listed on the Indian Stock Exchange. This would include shares, derivatives or equity-oriented mutual funds units. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities. Deducted at source by the broker or AMC, at the time of the transaction itself, the net result is that it pushes up the cost of the transaction done.

Scope of STT

As per of the Securities Contracts (Regulation) Act, 1956, STT would be applicable for securities of the following nature.

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 of equity nature
Such other instruments as declared by the Central Government
Rights or interest in securities
Equity-oriented mutual funds

STT is not applicable for any off-market transaction.

STT and Capital Gains Tax on Securities

With effect from assessment year 2009-2010, 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.

So the next time, your broker or AMC sends you your transaction bill or statement, remember that the extra bit you are paying over and above your transaction is nothing but the tax that has been levied. Whether it is purchase and sale of shares or mutual fund units, STT is here to stay and cannot be avoided.



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