Securities Transaction Tax (STT) is a direct tax levied by the Government of India on the purchase and sale of securities listed on recognized stock exchanges. Introduced in 2004, STT aims to streamline tax collection on stock market transactions and reduce tax evasion.
STT is applicable to a wide range of financial instruments, including shares, derivatives, equity-oriented mutual funds, and exchange-traded funds (ETFs). The rate of STT varies based on the type of security and whether the transaction is a buy or sell order. For example, delivery-based equity trades attract STT on both purchase and sale, while intraday and derivatives may attract it only on the sale side.
For investors, traders, and businesses engaged in securities trading, STT is automatically deducted by the stockbroker and paid to the government, meaning there is no separate filing or compliance burden. However, it is important to account for STT when calculating capital gains for income tax purposes, as it impacts the overall cost and return on investment.
From a compliance perspective, STT is crucial when filing income tax returns, especially if you are claiming capital gains or business income from trading. It also plays a role in determining eligibility for tax exemptions under certain sections of the Income Tax Act.
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In summary, STT is a small but significant tax that ensures transparency in the securities market while simplifying the taxation process for market participants.