STT is a transaction-based tax with clearly defined scope, application, and collection rules across market instruments.
- Collection at source: STT is deducted at the moment of transaction and remitted directly to the government.
- Applicability: It applies to equity shares, derivatives (futures & options) and equity oriented mutual funds.
- Excludes off market trades: Only trades executed on recognised stock exchanges attract STT; private or off market deals do not.
- Long term holding exemption: Both short and long term gains incur STT, but long term gains below prescribed thresholds may be exempt.
- Variable rates: The government periodically revises rates according to the instrument traded.
How does Securities Transaction Tax work?
Securities Transaction Tax (STT) works by applying a tax on the transaction value whenever you buy or sell certain securities, like stocks, in the Indian stock markets. The STT is levied to ensure that the investors end up paying a tax for the services they use of the Indian stock end and to facilitate the government in earning more income through taxes. The Indian government replaced an earlier tax called ‘Stamp duty’ with Securities Transaction Tax (STT) in 2004 as they improved the taxation system.
The Indian government levies STT on both buyers and sellers, and the tax rate varies depending on the type of security and whether you're buying or selling. For example, when you buy or sell equity shares, an STT of 0.1% is applied to the transaction value. The tax is automatically deducted by the stock exchange and paid to the government, making it a straightforward process for the investor.
The stock exchanges from which an investor buys and sells securities deduct the STT from the buy-and-sell order. Once deducted, they are liable to deposit the STT with the Indian government within a specific time frame.
STT adds to the cost of trading, impacting the overall profitability, especially for frequent traders. Since STT is non-refundable, investors argue that it hurts market liquidity and reduces the overall returns. An example of STT is if you buy 200 shares of a company at Rs. 500 per share, the total transaction value is Rs. 1,00,000. With an STT rate of 0.1%, you would pay Rs. 100 as STT.
How does STT work?
STT charges for different order types STT Comparison
As per Budget 2026–27, Securities Transaction Tax rates vary by transaction type. Delivery-based equity trades continue to attract 0.1% STT on both buy and sell sides. Intraday equity trades are taxed at 0.025% on the sell side only. In derivatives, futures contracts now attract 0.05% STT on the sell side, while options are taxed at 0.15% on the premium when sold and 0.15% when exercised.
Particulars
|
Before the revision
|
After the revision
|
Contract value
|
₹10,00,000
|
₹10,00,000
|
Applicable STT rate
|
0.02%
|
0.05%
|
STT payable
|
₹200
|
₹500
|
This results in an additional ₹300 STT per trade. For a trader executing 20 similar trades in a month, the STT outgo alone rises by ₹6,000, even before accounting for brokerage, exchange charges, or GST.
For traders targeting profits of ₹1,500–₹2,000 per trade, the higher STT significantly raises the breakeven point. Profit margins tighten, making smaller price movements less attractive relative to the risk involved.
Note: The contract value used above is illustrative. Actual STT costs may vary depending on prevailing market prices.
These revised security transaction tax rates impact traders and investors, influencing their overall transaction costs in the securities market.
The importance of Securities Transaction Tax
Introduced by the Finance Act 2004, STT streamlines stock market tax collection and deters evasion from underreported capital gains. Charged at transaction time, it mirrors the Tax Deducted at Source mechanism.
Revenue generation: One of the primary reasons for implementing the STT is to generate revenue for the government. The tax collected from securities transactions contributes to the overall tax revenue, which can be used to fund various public welfare initiatives, infrastructure development, and government expenditures.
One of the primary reasons for implementing the STT is to generate revenue for the government. The tax collected from securities transactions contributes to the overall tax revenue, which can be used to fund various public welfare initiatives, infrastructure development, and government expenditures.
Regulatory tool: The STT serves as a regulatory tool for monitoring and overseeing trading activities in the securities market. The tax helps authorities track transactions and identify any potential market manipulation or suspicious activities.
Despite these advantages, it's essential to consider potential drawbacks and limitations of the STT:
Impact on trading volumes: High STT rates may lead to reduced trading volumes as investors might be discouraged from frequent trading due to increased transaction costs.
Potential shift to other instruments: In some cases, the imposition of STT on certain securities might lead to investors shifting their focus to other investment instruments that are not subject to the tax, potentially distorting investment patterns.
How does Securities Transaction Tax work?
STT calculation
Equity intraday trade
- Buy: 500 shares at ₹100 each
- Sell: 500 shares at ₹105 each
- Average price = [(500 × ₹100) + (500 × ₹105)] ÷ 1,000 = ₹102.50
- STT (applicable only on the sell side) = 500 × ₹102.50 × 0.025% = ₹12.81, rounded off to ₹13
Equity delivery trade
- Buy date (1 October 2024): 500 shares at ₹100 each
- Sell date (3 October 2024): 500 shares at ₹105 each
- STT on purchase = 500 × ₹100 × 0.1% = ₹50
- STT on sale = 500 × ₹105 × 0.1% = ₹52.50, rounded off to ₹53
Options – STT on exercised contract (intrinsic value)
- 1 call option (CE) lot = 50 units
- Strike price = ₹17,300
- Spot price at expiry = ₹17,350
- Intrinsic value = (₹17,350 − ₹17,300) × 50 = ₹2,500
- STT on intrinsic value = 0.125% × ₹2,500 = ₹3.13, rounded off to ₹3
Options – STT on premium received
- 1 lot = 50 units
- Strike price = ₹17,300
- Premium received = ₹60 per unit
- Total premium received = ₹60 × 50 = ₹3,000
- STT on premium = 0.1% × ₹3,000 = ₹3
Futures contract
- Sell: 1 lot of XYZ futures
- Contract value = ₹7,50,000
- STT (applicable on the sell side) = 0.02% × ₹7,50,000 = ₹150
TDS Return Form explained with types and deadlines
Impact of Securities Transaction Tax on investors
STT increases transaction costs, particularly impacting short-term and intraday traders, which may lower overall returns because of the additional tax expense.
- Higher transaction costs: STT is an additional levy on buying and selling securities, increasing overall trading costs. For high-volume traders, this can materially impact profitability.
- Lower trading volumes: The added cost may discourage frequent or small-value trades, leading to reduced participation and lower market liquidity.
- Change in trading strategies: Investors and traders may adjust their strategies by favouring instruments or segments where STT rates are comparatively lower.
- Effect on mutual fund investors: While the impact is relatively limited, STT is reflected in a fund’s expenses, slightly reducing the Net Asset Value (NAV) and overall investor returns.
Levy of Securities Transaction Tax Revised STT Rates (Post-Budget 2026)
Securities Transaction Tax (STT) is levied on all purchases and sales of securities listed on recognised Indian stock exchanges. Charged at the moment a transaction is executed, it applies equally to equity shares and derivative contracts—futures and options. STT simplifies tax compliance by deducting the tax upfront and remitting it directly to the government, ensuring transparency and reducing capital gains underreporting. This upfront collection strengthens fiscal governance and market efficiency.
Sl. No
|
Transaction
|
STT Rate (from 1 Apr 2026)
|
Payable by
|
1
|
Purchase of equity shares (delivery)
|
0.10%
|
Buyer
|
2
|
Sale of equity shares (delivery)
|
0.10%
|
Seller
|
2A
|
Sale of equity mutual fund units (delivery)
|
0.001%
|
Seller
|
3
|
Sale of equity shares (non-delivery/intraday)
|
0.025%
|
Seller
|
4(a)
|
Sale of options (on premium)
|
0.15%
|
Seller
|
4(b)
|
Sale of options (when exercised)
|
0.15%
|
Buyer
|
4(c)
|
Sale of futures
|
0.05%
|
Seller
|
5
|
Sale of equity mutual fund units to MF
|
0.001%
|
Seller
|
5A
|
ULIP-linked equity fund redemption
|
0.001%
|
Seller
|
6
|
OFS sale of unlisted shares (later listed)
|
0.20%
|
Seller
|
7
|
OFS sale of unlisted business trust units
|
0.20%
|
Seller
|
STT is mandatory and charged to both buyers and sellers, depending on the type of transaction. The stock exchanges collect the STT at the time of the investors' transactions. For example, when an investor buys or sells shares, the broker includes STT in the transaction costs.
The government defines and adjusts the STT rates regularly. They are different for equity delivery, intraday trades, futures, options, and mutual funds. The tax is not refundable and is mandatory when buying and selling securities.
Conclusion
The Securities Transaction Tax is a tax levied on the purchase and sale of securities, such as equities, futures, options, etc, by the stock exchanges. Stock exchanges are required to deposit taxes with the Indian government within a specific timeframe. The main idea behind charging STT is to facilitate tax collection on trading activities. The STT is automatically deducted during the buying and selling of securities and is included in the transaction cost. Now that you know what is STT, you can make better investment decisions.
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