Securities Transaction Tax — Explained

With increase of STT in Budget 2026, the focus on proper reporting of stock market transactions has increased. Incorrect reporting of STT-related transactions may lead to wrong tax calculations or loss of tax benefits.

This document covers

1. What is STT?
2. Transactions covered under STT
3. Transactions not covered under STT
4. Who pays STT?
5. When is STT charged?
6. How much STT Charged?
7. STT and Its Role in Capital Gains Taxation

1. What is STT?

• STT means securities transaction tax.
• STT is a direct tax levied by Indian Government.
• STT is a tax charged on the buying and selling of securities like shares, equity mutual funds, and derivatives on recognized stock exchanges in India.
• STT is a transaction based tax and levied on every transaction irrespective of profit/loss

2. Transactions covered under STT

STT is applicable on the below transactions

• Equity shares (delivery & intraday)
• Equity-oriented mutual funds
• Derivatives (Futures & Options)
• Exchange Traded Funds (ETFs)
• IPO shares sale

3. Transactions not covered under STT

STT is not applicable on the below transactions

• Off-Market Transactions (ex: gift of shares, transfer of shares due to inheritance)
• Unlisted Shares
• Debt Securities and Bonds
• ESOP Allotment (STT might be applies at the time of selling shares later)
• Commodity Derivatives (commodity Transaction Tax will apply)
• Currency Derivatives
• IPO allotment (STT might be applies at the time of selling shares later)

4. Who pays STT?

• STT is required to be paid by buyers /sellers of securities depending on the type of transaction. Ex: Investors, traders, institutional investors etc
• STT is automatically deducted by the brokers and collected by stock exchange

5. When is STT charged?

STT is charged at various points of transactions

6. How much STT Charged?

Below is the general STT rate structure applicable to various securities transactions in India:

7. STT and Its Role in Capital Gains Taxation

STT plays a important role in determining the capital gains taxation on shares, mutual funds, and derivatives under Income Tax provisions. It is a key qualifying factor for claiming concessional tax rates on capital gains from equity investments.

1. Equity Shares/Equity oriented mutual funds: If STT is paid and the shares or mutual funds are sold within 12 months of purchase, it is considered as short term and taxable @ 20% w.e.f 23^rd July 2024 (earlier it was 15%)
   
   If STT is paid and shares are sold after 12 months of purchase, it is considered as long term and taxable @ 12.5% w.e.f 23^rd July 2024 (earlier it was 10%)


Note 1 : STT paid cannot be claimed as expense while computing capital gains

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Note 2 : If STT is not paid, the short-term period of holding is 2 years and taxable at slab rate and long term is more than 2 years and taxable @ 12.5%



2. Derivatives (Futures/options): This can be shown as business income and taxable as per slab rate of taxpayer. STT paid can be claimed as expense.
3. Intraday: This can be shown as speculative income and taxable as per slab rate of taxpayer. STT paid can be claimed as expense

Refer @ Capital Gains Income Tax Guide and Taxation on — Futures & Options (FOs) Trading for more information

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