The finance minister in her recently presented Budget documents ‘Receipt Budget 2025-26’ has estimated to collect Rs. 78,000 crore from Securities transaction tax (STT). The latest projections are a 40% (Rs 23,000 crore) increase from the revised estimate of Rs. 55,000 crore for the current financial year (FY2024-25) and 63% more than Rs. 33,778 crore reaped in the previous financial year. Since the levy is linked to secondary stock market’s performance, the collection will go up or down with the movement of the share market. Post-pandemic buoyancy in the stock market is likely to sustain and come in handy to offset the revenue forgone on new individual tax rate changes and achieve the next year’s target.
Securities transaction tax (STT) is levied on the value of taxable securities transactions traded on recognised stock exchanges. It is a direct tax levied on the investors, on every sale of securities. Stock exchanges, mutual funds, insurance companies, and lead merchant bankers are entrusted with collecting the tax on behalf of the government. It was introduced on October 1, 2004, to replace the earlier system of levy of stamp duty on securities transactions, to curb speculative trading, generate additional revenue and address the then rampant tax evasion on capital gains. It is levied on the buyer and seller of the securities.
Are all securities transactions subject to levy?
It is levied only on the following transactions – 1) Purchase or sale of a listed equity share of a company, a derivative, a unit of equity-oriented mutual fund and a unit of business trust. 2) Sale of unlisted equity shares under an offer for sale to the public or an initial public offer. 3) Sale of unlisted units of a business trust by any holder of such units acquired for consideration under an offer for sale to the public or an initial public offer and subsequently listed on a registered stock exchange. 4) Sale or surrender or redemption of a unit of an equity-oriented fund of an insurance company on maturity or partial withdrawal related to a ULIP issued on or after February 1, 2021.
Preference shares, government securities, bonds, debentures, and units of mutual funds other than equity-oriented are not subject to STT. In addition, those transactions entered by any person for or on behalf of the new pension system and a recognised stock exchange in an international financial service centre, for instance, transactions executed on GIFT-IFSC exchanges.
Value of taxable securities for calculating STT
Options – for computing the levy of STT, , each option trade is valued at the premium. Futures – at the actual value traded price. Any other taxable securities transactions – the price of such securities purchased or sold.
STT is levied at what rate?
The Central Government revises the tax rates periodically. The latest STT tax rates are effective from October 1, 2024.
The purchase of equity shares, units of an equity-oriented mutual fund, units of a business trust on delivery based – STT is applicable at 0.1% on equity shares, units of a business trust payable by the purchaser and other units at ‘nil’ rate.
The sale of equity shares, units of equity-oriented mutual fund, units of a business trust on delivery-based – STT is applicable at 0.1 % on equity shares and units of a business trust and other units at 0.001%. In case of non-delivery based or intraday transactions, the sale of equity shares, units of an equity-oriented mutual fund, units of business trust – STT is applicable at 0.025% payable by the seller.
Sale of derivatives i.e. Option and Futures – In case of sale of option on premium – STT is applicable at 0.1% payable by the seller and in case of sale of an option where the option is exercised – STT is applicable at 0.125% payable by the purchaser. In case of sale of Futures – STT is applicable at 0.02% payable by the seller. The stock exchange is required to collect the tax from the purchaser and seller as the case may be.
Sale of equity-oriented fund units to the mutual fund or surrender or redemption of a unit of an equity-oriented fund on maturity to/by an insurance company – STT is applicable at 0.001% payable by the seller. Mutual funds and insurance companies will collect the tax as such.
Sale of unlisted equity shares under an offer for sale to the public, sale of unlisted units of a business trust – STT is applicable at 0.2% payable by the seller. The Lead merchant banker is required to collect the same.
Is the STT levy eligible to be claimed as an exemption or deduction?
There was an tax exemption that could be claimed for STT paid up to March 31, 2018. However, it was withdrawn thereafter.
A deduction can be claimed on the amount paid as STT during a financial year (FY) provided income arising from such transactions is declared in the taxpayer’s income under the head ‘Profits and Gains of Business or Profession while filing the return of income for that FY.
Prabhakar K S is the founder & CEO of Shree Tax Chambers, a tax advisory firm.
