Securities Transaction Tax (STT)

Securities Transaction Tax (STT) Latest News

The Finance Minister recently proposed to raise the Securities Transaction Tax (STT) on both futures and options by up to 150%.

About Securities Transaction Tax (STT)

• It is a direct tax levied on the purchase and sale of securities listed on recognised stock exchanges in India. 
• It is levied and collected by the central government of India.
• It is applied irrespective of the profit or loss made by you in the transaction. It is levied directly on the value of the transaction. 
• STT operates similarly to Tax Deducted at Source (TDS) in that it is deducted at the time of the transaction itself. 
• The tax is paid directly to the government through the stock exchanges or other intermediaries involved in the transaction.
• Introduced through the Finance Act of 2004, STT was designed to simplify taxation on securities trading and curb tax evasion in the capital market.
• STT is governed by the Securities Transaction Tax Act (STT Act), and STT Act has specifically listed various taxable securities transactions, i.e., transactions on which STT is leviable.
  • Taxable securities include equities, derivatives, or equity-oriented mutual funds investment units (excluding commodities and currency).
  • It also includes unlisted shares sold under an offer for sale to the public included in IPO and where such shares are subsequently listed in stock exchanges. 
  • STT is not applicable to off-market transactions or to commodity or currency transactions.
• The rate of taxation is different for different types of securities.
• The government has the authority to revise STT rates periodically. 

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What is Futures and Options Trading?

• Futures and options are the major types of stock derivatives trading in a share market. 
  • Derivatives are financial contracts whose value is linked to the value of an underlying asset such as shares, stock market indices, commodities, ETFs, and more.. 
  • They are complex financial instruments that are used for various purposes, including speculation, hedging and getting access to additional assets or markets.
• Futures and Options are contracts signed by two parties for trading a stock asset at a predetermined price at a later date.
• Futures and Options trading are different in terms of obligations imposed on individuals. 
  • Futures contracts obligate the buyer to purchase an underlying asset, while the seller must deliver it at a predetermined price and date. 
  • In options contracts, the buyer has the right, but not the obligation, to buy or sell the underlying asset at a predetermined price and date, while the seller must honour the contract if the buyer chooses to exercise their option.

Source: CNBC