Security Transaction Tax was introduced in the Union Budget of financial year 2004-05. All transactions in stock and index options and future are subject to security transaction tax (STT). Buyer and seller both have to pay security transaction tax on tradable securities. The Security transactions tax is first collected by brokers then broker will pay it to the Stock Exchange then the Stock Exchange will pay it to the concerned authorities.

It came in effect from 01.04.2004. It is very smooth system to collect the tax from the buyers of securities. Security Transaction Tax is the replacement of Capital Gain Tax on the securities. There is no need to pay any Long Term Capital Gain Tax on the equity oriented securities subject to Security Transactions Tax. In respect of Short Term Capital Gain on equity oriented Securities, the rate of Short Term Capital Gain Tax is on confessional rate.

There are different rates of Security Transaction Tax apply on delivery base transactions and future transactions. In short the Security Transaction Tax is an alternative method of Capital Gains Tax on securities.

MEANING OF SECURITIES FOR THE PURPOSE OF SECURITY TRANSACTION TAX

Though there is no definition of securities in Indian Income Tax Act but as per the Securities Contract (Regulation) Act – Securities means:-

  • Shares, stocks, bonds, debentures and other marketable securities of any incorporated company or other body corporate.
  • All Derivatives
  • Units
  • Government Securities etc.

RATES OF SECURITIES TRANSACTION TAX

  1. Options:- STT is charged on aggregate value of the strike price and option premium.
  2. Futures:- It is charged on the value at which such futures are traded
  3. Other Securities:- STT is charges on the purchase price of purchaser and the selling price for a seller.
  4. There are different rates for delivery based transactions and non-delivery based transactions.

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