Securities Transaction Tax: Notes for UPSC Economy

Securities Transaction Tax (STT) is a type of turnover tax where the investor is obliged to pay a tax on the total sum received or paid in a transaction done through an exchange.

Security Transaction Tax is an important concept in the Economics segment of the IAS Exam.

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Definition of Securities Transaction Tax

Securities Transaction Tax (STT) is a type of turnover tax where the investor is obliged to pay a tax on the total sum received or paid in a transaction done through an exchange. STT is not applicable for commodities and currency transactions and on transactions outside of the exchange. It is applicable to securities like shares, debentures, bonds, mutual funds, government equity securities, derivatives, etc. The STT rates are different for delivery-based equity transactions and intra-day transactions. The rates are also different when buying security and when selling one. It was announced in 2004 by the then finance minister P Chidambaram with a view to decrease evasion of capital gains tax.

To know what role the Securities and Exchange Board of India plays in the implementation of STT, visit the linked article.

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What is the Scope of the STT?

According to the Securities Contracts (Regulation) Act, 1956, STT would be applicable to the following securities:

  • Shares, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporates
  • Derivatives
  • Units or any other instrument issued by any collective investment scheme to the investors in such schemes
  • Security receipt as defined in section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
  • Government securities of equity nature
  • Rights or interest in securities
  • Equity-oriented mutual funds

STT is not applicable for any off-market transaction.

As per the Finance Act 2004, and modified by Finance Act 2008 (18 of 2008) STT on the transactions executed on the Exchange shall be as under:

Computation of Securities Transaction Tax

Sr.No Taxable securities transaction New rate as of March 2020 Payable by
1 Sale of an option in securities 0.017 per cent Seller 
2 Sale of an option in securities, where the option is exercised 0.125 per cent Purchaser
3 Sale of a future in securities 0.01 per cent Seller

To know more about the Finance Bill, visit the linked article

Securities Transactions Tax – UPSC Notes:- Download PDF Here

You can find more articles through the links given in the table below. For more topics of similar nature, visit the UPSC Syllabus page:

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