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De-Jargoned | Securities Transaction Tax

De-Jargoned | Securities Transaction Tax
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First Published: Sun, May 22 2011. 09 44 PM IST
Updated: Sun, May 22 2011. 09 44 PM IST
What is it?
Securities transaction tax (STT) is a tax charged on the purchase and sale of securities listed on stock exchanges in India. Securities are tradable investment instruments that are either issued by companies or by the government. STT is also applicable to transactions in units of equity-oriented mutual funds (MFs).
When did it come into existence?
This tax was introduced in the 2004 budget and came into effect from 1 October 2004. The rate is set by the Central government and depends on the type of security traded and whether the transaction is a purchase or a sale.
STT was introduced when short-term capital gains tax was reduced from 30% to 10% (now 15%) and long-term capital gains tax was made nil. The idea behind introducing this tax was to ensure that profits or gains arising from securities transactions are taxed at source so as to compensate any attempt at evading capital gains tax. This also means that your stock broker or mutual fund will pass on this amount to the taxman.
When do you pay it?
STT has to be paid both during a purchase and sale of securities. It needs to be paid while transacting in equity shares, derivatives and equity-oriented MFs. The rate applicable on delivery-based transactions is different from intra-day transactions.
Typically, STT is included in the price of the security at the time of transaction. This means that if you are buying a share of a company, the STT will be included in the purchase price itself and the overall cost will increase by the amount of the tax. Similarly, at the time of sale, STT is deducted at source by the broker or asset management company.
What is the STT rate?
For delivery-based equity shares:
On purchase: 0.125% charged on turnover (total number of shares multiplied by the per share price)
On sale: 0.125% charged on turnover
For equity MFs: 0.25% on redemption of units
For equity intra-day trades: (here you don’t take delivery of the shares, buying and selling happens within one day)
On purchase: Nil.
On sale: 0.025% charged on turnover
Where can you see it?
If you look at the details in your equity contract note for a sale or purchase, you will find an STT amount mentioned along with other charges, such as brokerage. Even in your MF redemption statement, the amount of STT is mentioned.
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First Published: Sun, May 22 2011. 09 44 PM IST
More Topics: De-Jargoned | STT | MFs | Securities | Stock Exchanges |