The Securities Transaction Tax, which is shortly known as STT, has been introduced in the Budget of the year 2004 and it came into implementation from the month of October of 2004. The primary goal of the introduction of the Securities Transaction Tax is to avoid the evasion of the tax since the same has been taxed in the source.
Simply speaking, the Securities Transaction Tax is a type of turnover tax in which the investor or the tax payer has to pay the specified tax on the total of the consideration that has been received or paid in the share transaction.
The following areas come under the regulation of the STT.
- Exchange Traded Funds
- Futures
- Mutual Funds
- Options
- Stock
Tax on the Securities
The STT, abbreviation of the Securities Transaction Tax, a kind of tax payable in the direct category in India. It is imposed on the value of the securities made taxable and which is transacted via a well-known stock exchange.
The transaction tax on the securities can be applied on the fields of the securities in accordance with the Securities Contracts or the Regulation Act.
- The Derivatives;
- Equity oriented units of the mutual funds;
- Government securities of the equity nature;
- Rights or the interest in the securities;
- Securitized debt instruments.
- Security receipt in accordance with the definition in section 2(ZG) of the Securitization and the Reconstruction of the Financial Assets and the Enforcement of Security Interest Act of the year 2002;
- The debentures, share bonds, debenture stock or similar marketing securities, the scrips, the stock of similar nature of or in any company or enterprise that has been incorporated.
- The units or other similar instruments that has been collectively issued by any investment regime to the investors in such regimes.
The STT or the Securities Transaction Tax is not applicable for the off-market transactions.
Securities Transaction Tax Rate
| Particulars | STT Rate | Value on Which STT is Paid |
| Futures – On sale of futures in securities through recognized stock exchange |
0.01% | Value of sale of future in securities |
| Mutual fund – Every seller of equity oriented unit of mutual fund on sale of such equity oriented unit of mutual fund through recognized stock exchange |
0.025% | Value of sale of equity oriented unit of mutual fund |
| Option contract (seller) – On sale of option contract in securities through recognized stock exchange |
0.017% | Value of option premium received on sale of option contract in securities |
| Option contract (seller) – On sale of option contract which is exercised by buyer of option in securities through recognized stock exchange |
0.125% | Value of settlement price received on sale of option contract in securities |
| Purchaser of any equity oriented unit of the mutual fund | 0.1% | Buying the value of any equity oriented unit of the mutual fund |
| Purchaser or the seller of equity shares on purchase or the sale of the equity share through well-known stock exchange. | 0.1% | Value of the buy or the sale of the security |
| Seller of any equity oriented unit of the mutual fund | 0.025% | Value of the sale of the equity oriented unit of the mutual fund |
The Return Filing and Due Date of the STT: Securities Transaction Tax
All the eligible person who can pay the STT are required to do so before or on the seventh of each month starting from the following month in which the STT or the Securities Transaction Tax has been deducted or collected.
Moreover, it is important that the recognized Stock Exchange file their yearly return in the given format before or on the 30th of the month of June during the FY (financial year). This is the year when the STT is collected. Lastly, all the recognized Mutual Funds has to file their yearly return in the given format like the same date as before (on or before 30 June) of the FY (financial year) which follows the FY when the STT got collected.
Treatment of the STT following the Income Tax Regulation
The treatment of the securities transaction tax depends on its classification according to the Income Tax. Broadly, the classification can be of two types. These are:
- “Income from Capital Gains”
- “Profits and Gains of Business or Profession”
If a share is bought keeping an investing mindset, then the income which is generated from the securities becomes eligible to be taxed as per the “Income from Capital Gains” regime. According to this head, on the basis of the holding period of the shares or the securities, the profit or the loss on the sale of those securities can be taxed in terms of the “Long Term Capital Gain” or the “Short Term Capital Gain”.
To be treated under the “Short Term Capital Gain” of the “Income from Capital Gains” regime, the holding period of the securities has to be less than a year. In that case, the rate of the tax is decided to be 15 percent on any Equity Share that has been sold via any well-known stock exchange and for which the Securities Transaction Tax has been paid.
To be treated under the “Long Term Capital Gain” of the “Income from Capital Gains” regime, the holding period of the securities has to be more than a year. In that case, the rate of the tax is decided to be 10 percent on any Equity Share that has been sold via any well-known stock exchange and for which the Securities Transaction Tax has been paid.
On the other hand, if the share is bought keeping a business mindset, then the income which is generated from the securities becomes eligible to be taxed as per the “Profits and Gains of Business or Profession”. Under this category, the normal rate of the Income Tax will be imposed on the taxable income which has been earned through the sale of the shares or the securities. But it should be mentioned that according to the Section 36 of the 1961 Income Tax Act, the STT that has been paid with respect to such types of shares will be allowed to be a deduction.
These are all the basic information regarding the STT or the Securities Transaction Tax.
To avail quick and hassle free legal services visit www.companyvakil.com
