STT
Securities Transaction Tax (STT) is a direct tax levied on transactions in listed securities on recognised Indian stock exchanges, introduced by the Finance Act 2004 and currently applicable at rates ranging from 0.001% to 0.02% depending on the instrument and transaction type.
STT was introduced in the Finance Act 2004 primarily to curb tax evasion on capital market transactions by making the levy automatic at the point of exchange execution. It is deducted at source by the stock exchange or the recognised mutual fund and remitted to the government, making compliance seamless for retail investors who never need to compute or deposit it separately.
Current STT rates (post-Budget 2024 revision) include 0.1% on equity delivery purchases and sales, 0.025% on intraday equity sales, 0.02% on futures (increased from 0.01% in Budget 2024), and 0.1% on options premium (increased from 0.05% in Budget 2024). The Budget 2024 doubling of F&O STT rates was a deliberate policy measure to moderate speculative derivatives trading activity, which had reached record volumes.
STT has a direct and important linkage with capital gains taxation. LTCG under Section 112A and STCG under Section 111A concessional rates apply only to transactions on which STT has been paid. If a listed share transaction happens off-market without STT (e.g., a private off-market transfer), the concessional rates do not apply, and the gain is taxed at slab rates for short-term or at 20% with indexation for long-term under Section 112.
For equity delivery traders, STT is a cost embedded in every round-trip transaction. On a ₹10 lakh delivery trade, the combined STT on buy and sell is ₹2,000 — a meaningful drag on returns for high-frequency portfolio rebalancers. Intraday traders face lower STT per trade but high volume amplifies total STT paid annually.
STT is not deductible as a business expense for capital gains computation, but it is allowed as a deduction when computing business income for traders who declare F&O or intraday trading as a business. This asymmetry means the treatment of STT depends entirely on how the taxpayer has classified their trading activity — a distinction that significantly affects overall tax liability.