Securities Transaction Tax (STT) was introduced by Finance Minister P Chidambaram in the Union Budget 2004-05. STT is levied on every buy or sell of securities that are listed on the Indian stock exchanges. This would include shares, derivatives or equity-oriented mutual fund units. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities. The tax is deducted at source by the broker at the time of the transaction itself, which goes to the exchange from the broker to pay to the Income Tax Department of India.
STT Charges for trading in different segments in India
STT is applied on the value of transactions and charged to traders/investors in the contract notes issued by your the broker. Since brokers have to automatically add this tax to the transaction price, there is no way to avoid it.
Your contract note specifically shows each and individual charges like STT, Exchange Transaction Charges, SEBI Charges, Service Tax (Brokerage + Exchange Transaction Charges), Stamp Duty along with the brokerage.
STT on Equity Delivery Trades: Rs 10,000 per Crore or 0.1% per volume on buy and sell both sides.
STT on Equity Intraday Trades: Rs 2,500 per Crore or 0.025% per volume on sell side only and is valued at the actual traded price.
STT on Equity Futures Trades: Rs 1,000 per Crore or 0.01% per volume on sell side only and is valued at the actual traded price.
STT on Equity Options Trades: Rs 5,000 per Crore or 0.05% on sell side only on premium value.
STT on Exercised Options on Expiry: Equity Options on Exercised and Assigned Trades - Rs 12,500 per Crore or 0.125% on notional values of trades.
Key Points to be noted about STT and CTT:
- Since STT is paid on transactions, capital gains on securities transactions get charged at a preferential rate. In case of short term capital gains, a tax of 15% is applicable.
- Long term capital gains are exempt from tax for transactions where STT is paid.
- Same as STT is applicable for trading in securities, Commodity Transaction Tax CTT is applicable for trading in non agro commodity derivatives.
- CTT does not apply to certain agro commodities, but it does apply to all non- agro commodities like gold, silver and non-ferrous metals such as copper and energy products like crude oil and natural gas.
- STT is not charged on bonds and currency.
Save Yourself from the STT Trap in Options
Options Traders must be careful about STT trap on Index options like Nifty options and Bank Nifty Options. Also while trading stock options. If you square up your position before the contract expires, then STT will be charged only on the premium you paid. if you do not sell this position and let it exercise, STT will be levied on the settlement price on the day of exercise.
Assume, you have bought Nifty Options of Strike Price 8700 @ Rs 100 per lot. You will not be charged any STT as STT is applicable only on the selling side.
One Nifty lot is currently 75 units. So, If you sell that position @ Rs 100 itself, then you will be charged Rs 3.75 ((100*75*0.05%) as STT. STT for selling options is 0.05% of the premium amount.
But, if you carry your option till expiry and your in-the-money option gets exercised, then you will be charged 0.125% STT of the ENTIRE CONTRACT VALUE.
This means, if you had bought 1 lot of Nifty 8700 options at Rs 100 and didn't sell it, but let it get exercised on the last day of the contract i.e. The expiry day and if Nifty closed at 8706 on expiry day and your option ends up with the money then, you will be charged STT of Rs 816 approx. ((8706*75)*0.125%). In such case, if you buy more lots, then you STT will increase many folds, sometimes even way bigger than your profit.
Instead, had you sold it on the exchange than you would have been charged STT about 0.05% only on premium value.
It is in your best interest and also advised from your broker to square off your in-the money i.e. ITM options expiring today to save yourself from the STT Liability!
