What is STT? (Securities Transaction Tax)
STT refers to Securities Transaction Tax which is levied on the securities transactions (sale and purchase), which are carried out on stock exchanges. This tax was introduced by the Budget 2004 and is applicable since. Securities transactions include usual equity shares and derivative products (futures transaction and options transaction). So STT won’t be applicable on off market or OTC (Over The Counter) transactions. This tax was introduced to tax the securities transactions at source and to ensure that the tax evasion will be reduced to a large extent.
Recent announcements and amendments
Budget 2012 revised the STT rates as applicable as per Budget 2004 (when STT was introduced). It revised STT rates for equity shares transactions (both on buying and selling transactions), which were dealt for the delivery of such shares.This year again, Budget 2016 has revised the STT rate for a certain category (options transactions). This change was almost three times that of prevailing STT rates. Even though STT is charged on option premiums, it may not result in higher outflow. However, it has been expected to result in widening of Bid and Ask spread (difference between purchase price and sales price)
Rates of STT
Prevailing STT rates
How STT is calculated?
On turnover The STT will be calculated on the total turnover of the sale or purchase transactions (except for options transactions). For e.g. if Mr. A purchased 100 equity shares of Rs. 10, then STT will be calculated as below (in case he opts for delivery). STT = 100 x 10 x 0.10% = Re. 1 In such case, the purchaser will pay Rs.1001 for squaring off the purchase transaction for delivery. Options transactions With an amendment brought forward by the Budget 2016, STT on purchase and sale transactions for options is same @ 0.125%. However, it differs in the way it is levied. For purchase transactions, it is levied on settlement price which is exercised and for sale transactions, it is levied on premium. CONCLUSION STT is just like a tax which is collected at the time of materializing an event (in this case sale or purchase of securities). It adds up to your purchase price and is deducted from your sale price. Hence, this may be crucial, if you are dealing in small portions of shares or small amount of transactions. Recommended Articles
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