July 11 , 2013
Securities Transaction Tax is a financial transaction tax that you pay every time you buy securities on an exchange in India directly or indirectly. It was introduced by the government as a tool to record securities transactions on the exchange and curb the menace of capital gains tax avoidance by some. Read on to know what securities attract this tax, how it is paid and securities transaction tax rate.
Securities attracting Securities Transaction Tax
Securities Transaction Tax is currently levied only on equities. Equity shares both delivery based and intra-day, equity derivatives and equity oriented mutual funds attract STT. Currently preference shares, government securities, bonds, debentures, currency derivatives, units of mutual funds other than equity oriented mutual funds and gold funds are exempted from STT.
How Securities Transaction Tax is charged
Stock exchanges are responsible for collecting STT. It is deducted every time a broker or mutual fund AMC does a buy transaction or sell transaction. So your purchase price is automatically increased by the tax amount. Similarly your redemption amount is decreased by the tax amount. You can check STT charges on the transaction statement from your broker or AMC.
Securities Transaction Tax Rate
STT rates have varied from time to time since their introduction in 2004. The rates differ depending on type of security and type of trade. For current rates refer to STT rates ready recknor.
Tax benefit for professional traders
Professional traders who engage in trading as a business can claim tax rebate on STT. They would show income from such trading as business income and can get deduction on STT based on provisions of section 36 of the Income Tax Act. But others who buy or sell securities and show such income as capital gains do not get tax rebate on STT.
Though the real purpose of STT is to track institutional buyers who might avoid paying capital gains tax by not declaring such gains, common investors and traders also have bear the charge.