SECURITIES TRANSACTION TAX (STT) (Syllabus: GS Paper 3 – Economy)

Context: The Union Budget has increased the securities transaction tax (STT) on futures and options (F&O), reflecting market expectations.

Securities Transaction Tax (STT)

• About: It is a direct tax levied at the time of purchase and sale of securities listed on stock exchanges in India.
• Definition of Securities: These are tradable investment instruments such as shares, bonds, debentures, equity-oriented mutual funds (MFs), issued either by companies or the Indian government.
• Implementation: This tax was introduced in the 2004 Union Budget and came into effect from 1 October 2004.
• Governing Legislation: STT is governed by the Securities Transaction Tax Act (STT Act), which specifies various taxable securities transactions.
• Rates of STT: The rate of STT differs based on the type of security traded and whether the transaction is a purchase or a sale.
• Rate Determination: These rates are decided by the central government.
• Purpose of STT: The initiative behind introducing STT was to curb the evasion of capital gains tax on profits earned from trading in securities.
• Taxable Securities: Equity, derivatives, units of equity-oriented mutual funds, unlisted shares sold under an offer for sale in an IPO, and subsequently listed shares.