1. What is Securities Transaction Tax (STT)?
Securities Transaction Tax (STT) is a tax levied on the purchase or sale of securities listed on recognised stock exchanges in India. Unlike income tax, STT is collected at the point of transaction — deducted by the stock broker and remitted to the government. STT is governed by the Securities Transaction Tax Act, 2004, not the Income Tax Act, 2025. However, it has significant interaction with income tax — particularly for capital gains.
2. STT Rates (as amended by Finance Act 2024)
| Transaction Type | Rate | Payable By |
|---|---|---|
| Delivery-based equity purchase | 0.1% of transaction value | Buyer |
| Delivery-based equity sale | 0.1% of transaction value | Seller |
| Intraday equity sale (BTST/MIS) | 0.025% of transaction value | Seller |
| Equity futures sale | 0.02% of transaction value (revised up — Budget 2024) | Seller |
| Equity options sale | 0.1% of premium (revised up — Budget 2024) | Seller |
| Equity mutual fund redemption | 0.001% of transaction value | Seller |
3. STT and Income Tax: The Connection
STT has a direct impact on how capital gains from listed securities are taxed under ITA 2025:
- LTCG on listed equity (Section 112A): 12.5% rate applies only if STT was paid at acquisition AND at sale. Without STT, gains are taxed at 20%+ under normal provisions.
- STCG on listed equity (Section 111A): Concessional 20% rate applies only if STT was paid on sale.
- STT itself is NOT deductible as a business expense for traders claiming business income on F&O — Budget 2023 removed this deduction for speculative traders. Regular businesses can still claim it.
4. STT Example for an Equity Investor
Illustrative only. Priya buys 100 shares of a company at Rs 500 each (total Rs 50,000). STT on purchase: Rs 50,000 × 0.1% = Rs 50. She sells at Rs 800 (total Rs 80,000, gain = Rs 30,000). STT on sale: Rs 80,000 × 0.1% = Rs 80. Total STT paid: Rs 130. Because STT was paid on both buy and sell, her LTCG of Rs 30,000 (if held 12+ months) is taxed at 12.5% under Section 112A — after Rs 1.25L annual exemption.
5. STT on Futures and Options: Budget 2024 Changes
Budget 2024 significantly increased STT on F&O:
- Futures STT: Increased from 0.0125% to 0.02%
- Options STT: Increased from 0.0625% to 0.1% of premium
This increase was aimed at curbing excessive retail participation in the F&O segment after SEBI data showed 90%+ of retail F&O traders incurring losses.
6. STT is Not an Income Tax Credit
STT paid is a cost of transaction — it is NOT creditable against your income tax liability like TDS. You cannot adjust STT paid against your capital gains tax or business income tax. It is a transaction cost and can only be claimed as a business expense if you are a professional trader declaring F&O/trading income as business income.
7. Why TaxClue
Understanding STT is essential for investors and traders — it affects capital gains tax rates, costs of trading, and business income computation. TaxClue provides complete investment taxation advisory. Contact us for capital gains and trading income planning under ITA 2025.