STT(Securities Transaction Tax)
The Securities Transaction Tax (STT) was introduced by Chapter VII of the Finance Act (No.2) Act, 2004. On July 8, 2004, India's Finance Minister, P. Chidambaram, presented Finance Bill (Bill No. 22, 2004) in Parliament in which he proposed the introduction of Securities Transaction Tax (STT) in the Indian financial markets. Under the proposal, every transaction in securities in a recognized stock exchange in India would attract a turnover tax of 0.15 per cent. The STT was introduced in order to simplify the tax regime on financial market transactions. While introducing the STT, it was proposed to abolish the tax on long-term capital gains altogether and reduced the short-term capital gains tax from 33 per cent to 10 per cent.
There is no denying that STT acts as an efficient instrument to collect the taxes, as many market players fudge transactions to evade capital gains taxes but it would be erroneous to consider STT (indirect tax) as a substitute to capital gains tax (direct tax).
STT is applied as following (effective from June 1st, 2005):
For transactions in a recognized stock exchange in India:
Purchase/Sale of equity shares, units of equity oriented mutual fund (delivery based) - 0.10%
Sale of equity shares, units of equity oriented mutual fund (non-delivery based) - 0.02%
Sale of derivative - 0.01% Sale of unit of an equity oriented fund to the mutual fund - 0.2%
Items that fall under category of ’securities’
‘Securities’ are defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA) to include:
i. Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
ii. Derivatives
iii. Units or any other instrument issued by any collective investment scheme to the investors in such schemes
iv. Security receipt as defined in Section 2(zg) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
v. Such other instruments as declared by the Central Government; and
vi. Rights or interest in securities
vii. Equity-oriented mutual funds (not debt-oriented mutual funds)
STT is not applicable in case of government securities, bonds, debentures and units of mutual fund other than equity oriented mutual fund.
Tax exemptions in regards to short term and long term capital gains
Long Term capital gains:
For sale of equity shares, units of equity oriented mutual fund (delivery based), the gains are exempt from tax under section 10(38)
For sale of unit of an equity oriented fund to the mutual fund, the gains are exempt from tax under section 10(38)
Short Term capital gains:
For sale of equity shares, units of equity oriented mutual fund (delivery based), the gains are taxable at the rate of 10% (+surcharge +education cess) under section 111A
For sale of unit of an equity oriented fund to the mutual fund, the gains are taxable at the rate of 10% (+surcharge +education cess) under section 111A
Sales of equity shares, units of equity oriented mutual fund (non-delivery based) and Sales of derivatives are both treated as business income. If income is shown as business income, one can claim tax rebate under section 88E.
For Details click http://mof.gov.in/the_ministry/dept_revenue/revenue_headquarters/cbdt/SecuTransTaxRules.pdf
The Securities Transaction Tax (STT) was introduced by Chapter VII of the Finance Act (No.2) Act, 2004. On July 8, 2004, India's Finance Minister, P. Chidambaram, presented Finance Bill (Bill No. 22, 2004) in Parliament in which he proposed the introduction of Securities Transaction Tax (STT) in the Indian financial markets. Under the proposal, every transaction in securities in a recognized stock exchange in India would attract a turnover tax of 0.15 per cent. The STT was introduced in order to simplify the tax regime on financial market transactions. While introducing the STT, it was proposed to abolish the tax on long-term capital gains altogether and reduced the short-term capital gains tax from 33 per cent to 10 per cent.
There is no denying that STT acts as an efficient instrument to collect the taxes, as many market players fudge transactions to evade capital gains taxes but it would be erroneous to consider STT (indirect tax) as a substitute to capital gains tax (direct tax).
STT is applied as following (effective from June 1st, 2005):
For transactions in a recognized stock exchange in India:
Purchase/Sale of equity shares, units of equity oriented mutual fund (delivery based) - 0.10%
Sale of equity shares, units of equity oriented mutual fund (non-delivery based) - 0.02%
Sale of derivative - 0.01% Sale of unit of an equity oriented fund to the mutual fund - 0.2%
Items that fall under category of ’securities’
‘Securities’ are defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA) to include:
i. Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
ii. Derivatives
iii. Units or any other instrument issued by any collective investment scheme to the investors in such schemes
iv. Security receipt as defined in Section 2(zg) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
v. Such other instruments as declared by the Central Government; and
vi. Rights or interest in securities
vii. Equity-oriented mutual funds (not debt-oriented mutual funds)
STT is not applicable in case of government securities, bonds, debentures and units of mutual fund other than equity oriented mutual fund.
Tax exemptions in regards to short term and long term capital gains
Long Term capital gains:
For sale of equity shares, units of equity oriented mutual fund (delivery based), the gains are exempt from tax under section 10(38)
For sale of unit of an equity oriented fund to the mutual fund, the gains are exempt from tax under section 10(38)
Short Term capital gains:
For sale of equity shares, units of equity oriented mutual fund (delivery based), the gains are taxable at the rate of 10% (+surcharge +education cess) under section 111A
For sale of unit of an equity oriented fund to the mutual fund, the gains are taxable at the rate of 10% (+surcharge +education cess) under section 111A
Sales of equity shares, units of equity oriented mutual fund (non-delivery based) and Sales of derivatives are both treated as business income. If income is shown as business income, one can claim tax rebate under section 88E.
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