Article explains History of Securities Transaction Tax (STT), Why STT is introduced, On Which securities STT it is charged, How STT is charged, Person Responsible for collecting and paying STT, Non-Applicability of STT, Income Tax on shares on which STT Paid and Can we avoid STT?
What is Securities
- A security is a tradable financial asset. The term commonly refers to any form of financial instrument
What is Transaction?
- an instance of buying or selling something.
History of STT?
The STT is applicable from 1stOctomber 2004 Finance Minister P.Chidambaram.
Why is it introduced?
- Securities Transaction Tax (STT) was introduced in the year 2004 to curb tax evasion of capital gains tax.
- This move by the Government is to ensure that the tax on financial market transactions is collected in a clean and efficient way.
- STT is levied on the purchase and sale of securities despite profit or a loss from a transaction.
On Which securities it is charged?
- The securities include equities, derivatives, equity funds, unlisted shares of IPO and offer for sale.
- Futures and options will have STT only on the sell side.
Definitions
Equity oriented mutual fund: Equity-oriented mutual funds schemes are such funds which invest at least 65% of the assets in equities and equity related instruments.
Unit of Business Trust: Business Trust= Real Estate Investment Trusts (REITs) + Infrastructure Investment Trusts (InvITs). These trusts are like mutual funds that raise resources from many investors to be directly invested in realty or infrastructure projects.
How is it charged equity shares?
| Taxable securities transaction | Rate | Who Pays STT | Transection value on which STT is charged |
| Delivery based purchase of equity share or units of business trust | 0.1% | Purchaser | Purchase Price |
| Delivery based sale of an equity share or units of business trust | 0.1% | Seller | Selling Price |
| Delivery based sale of a unit of equity oriented mutual fund | 0.001% | Seller | Selling Price |
| PURCHASE OF UNITS OF EQUITY ORIENTED MUTUAL FUNDS | NIL | NA |
How is it charged intraday and F&O?
| Taxable securities transaction | Rate | Who Pays STT | Transection value on which STT is charged |
| Sale of equity share or unit of equity oriented mutual fund in recognised stock exchange (Intraday or non-delivery based) | 0.025% | Seller | Selling Price |
| Derivative – Sale of an option in securities | 0.05% | Seller | Option premium |
| Derivative – Sale of an option in securities where options is exercised | 0.125% | Seller | Settlement price |
| Derivative – Sale of futures in securities | 0.01% | Seller | Price at which such futures is traded |
How is it charged?
| Taxable securities transaction | Rate | Who Pays STT | Transection value on which STT is charged |
| Sale of unit of an equity-oriented fund to the Mutual Fund – Exchange traded funds (ETFs) | 0.001% | Seller | Price at which unit is sold |
| Sale or surrender or redemption of a unit of an equity-oriented fund to an insurance company, on maturity or partial withdrawal, with respect to unit linked insurance policy issued by such insurance company on or after the 1 of February 2021. | 0.001% | Seller | Price at which unit is sold |
| Sale of unlisted shares under an offer for sale to public included in IPO and where such shares are subsequently listed in stock exchanges |
0.2% |
Seller | Price at which such shares are sold |
Equity oriented mutual fund:
Equity-oriented mutual fund schemes are such funds which invest at least 65% of the assets in domestic companies equity and equity related instruments.
Unit of Business Trust:
Business Trust= Real Estate Investment Trusts (REITs) + Infrastructure Investment Trusts (InvITs). These trusts are like mutual funds that raise resources from many investors to be directly invested in realty or infrastructure projects.
|
Taxable securities transaction |
Rate | Who Pays STT |
The Transaction value on which STT is charged |
| Delivery-based purchase of equity shares or units of business trust | 0.1% | Purchaser | Purchase Price |
| Delivery-based sale of an equity share or units of business trust | 0.1% | Seller | Selling Price |
| Delivery-based sale of a unit of equity-oriented mutual fund | 0.001% | Seller | Selling Price |
| PURCHASE OF UNITS OF EQUITY ORIENTED MUTUAL FUNDS | NIL | NA | |
| Sale of equity share or unit of equity-oriented mutual fund in recognized stock exchange (Intraday or non-delivery based) | 0.025% | Seller | Selling Price |
| Derivative – Sale of an option in securities | 0.05% | Seller | Option premium |
| Derivative – Sale of an option in securities where the option is exercised | 0.125% | Seller | Settlement price |
| Derivative – Sale of futures in securities | 0.01% | Seller | Price at which such futures is traded |
| Sale of a unit of an equity-oriented fund to the Mutual Fund – Exchange-traded funds (ETFs) | 0.001% | Seller | Price at which unit is sold |
| Sale or surrender or redemption of a unit of an equity-oriented fund to an insurance company, on maturity or partial withdrawal, with respect to unit-linked insurance policy issued by a such insurance company on or after the 1 of February 2021. | 0.001% | Seller | Price at which unit is sold |
| Sale of unlisted shares under an offer for sale to public included in IPO and where such shares are subsequently listed in stock exchanges | 0.2% | Seller | Price at which such shares are sold |
Person Responsible for collecting and payment
- A listed stock exchange or the merchant broker or any prescribed person is responsible for collecting STT from the investors.
- They must pay STT to the Government of India before the 7th of every month.
- There will be interest levied and penal consequences in the event of failure to collect and pay the taxes.
Income Tax on shares on which STT Paid.
- Short-term capital gain within 12 months of purchases 111A – 15%
- Long-term capital gain beyond 12 months from purchases 112A – up to 1 Lakh exempt
- 10% without indexation
- 20% with indexation
Non-Applicability of STT
- STT is not applicable in the case of preference shares, Government securities, bonds, debentures, units of mutual fund other than equity-oriented mutual fund, and in such cases, the tax treatment of short-term and long-term capital gain shall be as per normal provisions of law
Can we avoid STT?
- No, you cannot if your transaction is on RSE then on purchase and sell of securities as discussed above charges STT
STT is not collected on transactions what to do?
- Even though STT is not collected on securities, but it is applicable to such securities in such case you can calculate your income tax as per section 111A and 112A and not as per normal provisions of law
Is security transaction tax refundable?
- No, it is not refundable except it can be claimed as a business expense and other taxes and charges by the person (professional traders) who trade in mutual funds or shares or F&O.
Link of Video : https://youtu.be/Rm_P25gEdwk
Disclaimer: The contents of this document are solely for informational purposes. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor its affiliates accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
Author Bio
R/Sir,
whether STT is chargeable on issue of NEW shares of a company (not offer for sale) by way of IPO to public. if no, then whether those shares can be covered u/s 112A of income tax act?
Shares that are purchased from RSE. Shares are applicable for STT, Wheather it is OFS or IPO (New Issue). It is covered under 112A.
Thank You, Ankush
Very Usefull article with all details related to STT