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Securities Transaction Tax (STT) in India - Explained

Published on Saturday, February 11, 2017 by Mukesh Kothari

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Securities Transaction Tax (STT) in India - Explained

Securities Transaction Tax (STT) in India - Explained

Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. STT was introduced in the Finance Act 2004 and change multiple times after that.

The STT Rate differs based on the products segment (i.e. Eq Delivery, Eq Future etc) and transaction type (buy, sell).

The brokerage, service tax and STT are indicated separately in the contract note.

How is it calculated and charged?

STT Rates

Securities Transaction Tax is collected by exchange from the broker on behalf of the client and paid to the Income Tax Department of Government of India. STT is charged based on the segment and transaction type at the rate describe below (as of Feb 2017).

  • Equity Delivery Trades: Rs 10,000 per Crore or 0.1% (on both buy and sell)
  • Equity Intraday Trades: Rs 2,500 per Crore or 0.025% (only on the sell side)
  • Equity Futures Trades: Rs 1,000 per Crore or 0.01% (only on the sell side)
  • Equity Options Trades: Rs 5,000 per Crore or 0.05% (of premium value)
  • Equity Options on Exercised and Assigned Trades: Rs 12,500 per Crore or 0.125% (on notional values of trades)
  • Currency Derivatives: No STT
  • Wholesale debt instrument: No STT

* Exercised Trade means buy (for call options) or sell (for put options) the underlying security at the striking price. We use European Style options i.e. they can be exercised / assigned only on the expiry date.

Brokerage Calculator

Brokerage calculator offered by online stocks broker helps understanding the STT investor pays for the security transaction. As the rate of STT is same, you could check the brokerage calculator on any online broker website. i.e. ProStocks Brokerage Calculator (ProStocks is a Mumbai based discount broker offering trades at Rs 15 per trade.)

Key points about STT

  • STT is the largest fee paid by traders with discount stock brokers. In some cases its over 100 times more than brokerage itself.
  • STT increase cost of trading significantly and affect investor behavior including saving, trading, and risk-taking.
  • It increases the breakeven point for Algo trading and Arbitrage and make them more risky.
  • STT especially reduces the benefits through short-term trading. For long term the cost of establishing an investment position is pay back over a longer period thus reducing STT's impact.
  • The futures markets dominance over option-market has drastically fallen following the increase in STT in recent years.

How has it evolved and impacted the volumes?

India, taxes equity futures and options as well as the underlying shares. Futures are taxed based on their delivery price, while options are taxed both on the premium and on the strike price, if exercised.

USA (in 1966), Germany(1991), Japan (1999), Australia (2001), France (2009), Canada, Mexico eliminated its stock transaction tax. This has boost the market participation and volumes significantly in these markets.

It has been observed consistently that STT along with capital gains tax (CGT) distort trading relative to a tax-free market.

India is among the countries with highest taxes in stock markets. Other then brokerage, investor pays taxes:

  1. Securities Transaction Tax (STT)
  2. Exchange Transaction Charges (i.e. Rs 325 per Crore for equity intraday/delivery at NSE)
  3. SEBI Charges (Rs 15 per Crore)
  4. Service Tax (15% on Brokerage + Exchange Transaction Charges)
  5. Stamp Duty (State wise )
  6. Short-term capital gains tax (CGT)

Capital gains tax (CGT)

CGT is tax by Government of India on capital gains. India has two types of capital gain taxes:

  1. Short-Term Capital Gain Tax (STCGT) - Investor holds an exchange traded stock, ETF or bond for less than 12 months before selling it. STCGT is charged at 15% tax under Section 111A of the Income Tax Act. The debt-oriented mutual funds doesn't come under Section 111A and the income though them goes to the regular income.


  1. Long-Term Capital Gain Tax (LTCGT) - Investor holds an exchange traded stock, ETF or bond for over 12 months before selling it. Long-term capital gains that fall under Section 10(38) of the Income Tax Act are not taxable. Equity shares, equity-oriented mutual-funds, and units of business trust cannot be subject to tax if:
  • the sale is taxable under the STT,
  • the shares are a long-term capital asset, and
  • the sale has happened on or after October 1, 2004.

The tax free nature of long term capital gain encourages holding of securities for longer term. This holding pattern increases the price of the security over the time and thus offset the burden of STT on the transaction.

In addition to discouraging gains realization, a CGT encourages immediate realization of losses (provided there is some available loss offset).


India has most complex and higher taxes on security transactions in comparison to other similar size markets. India also has lowest participation in the market from the investors.

In India, a stock market investor pays over 7 taxes/fees in addition to the broker commission, demat account changes and bank related transaction charges.

Simplifying the tax structure and reducing it further is the key to increase the participation, which intern makes the market strong and less volatile.

 An independent study by SEBI suggested STT on protective-put and hedged-call positions should be reduced to give boost to the option market. The same study concluded that a reduction of 75% in STT was required to achieve any meaningful arbitrage opportunities.

Decreasing the STT or even getting rid of it all together in some segments could significanly increase the volume of trading.

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4. Zabir  Oct 28, 2018 07:30 Reply
In india it is very serious problem tax on tax in stock market trading and it is also so much high however so much high that you can not satisfaction the profit earn by client and it is better to exit from this Edo due to high pressure tax an tax in this we can not save from the profit how to possible to run the business .

In my view the govt should to do something reduce tax on tax pressure on trader so that investment get momentom and growth the gdp .
3. amit  Nov 12, 2017 16:26 Reply
a very useful article
2. Ravindra  Oct 25, 2017 23:50 Reply
this is true
I just checked my total charges amt
found out that Turnover charges & STT total is bigger than Brk.
it''s eating my profit
why no one is talking about that
if they lower the STT and TC participation of trader will b more
more people will join d mkt
1. Share View  Mar 12, 2017 07:32 Reply
Very Useful Article

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