Securities Transaction Tax: STT Charges & Calculation Explained
Have you ever wondered why your stock market transactions come with an extra charge? If yes, then understanding the STT full form in Mutual Funds that is Securities Transaction Tax will come in handy.
Whether you are a seasoned investor or just dipping your toes into the world of stocks, understanding STT charges or how is STT calculated can help you make smarter financial decisions in 2025.
In this blog, you will get to know about STT engagingly, so sit back, relax and let’s decode this tax together.
What is Securities Transaction Tax (STT)?
STT full form in tax stands for Securities Transaction Tax. It is intended to raise revenue from the trading of securities. STT is levied on the value of the securities traded on the stock exchanges. The tax is levied on different financial instruments.
STT comes under direct tax. STT charges on security trading in India. The charge was implemented in 2004 and for this year, it is more than two decades. It was implemented to cut down speculative business and raise money from the financial market of India. It is imposed on the value of the transaction on securities traded through the Indian share market. It comprises derivative, shares and equity-based mutual funds. Lets understand with an example.
If you are selling 100 shares of a company for Rs.100 per share, the value of the transaction is Rs.10,000. If STT charges on delivery is 0.1%, you will have to pay an STT of Rs.10. You will realize that the tax you are paying is independent of the fact that you are making a profit or loss on selling the shares. It is like the Tax Deducted at Source (TDS).
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The History of Securities Transaction Tax: A Quick Flashback
STT tax made its debut in India in 2004 as a way to simplify stock market taxation and curb tax evasion. Before its introduction, calculating and collecting capital gains tax was a tedious process. The government decided to cut the hassle by implementing STT Charges, an automatic deduction on every trade.
Over the years, the STT rates have seen multiple revisions to balance government revenue and market efficiency. Let's see how STT is calculated with a suitable example for your better understanding.
How Securities Transaction Tax (STT) Calculated?
As mentioned above, you are required to pay STT charges for the buying and selling of securities on the Indian stock exchange. Since STT is applied on both the buying and selling transactions, the average price is worked out as below:
Let's understand this formula by example, Just imagine you did the following:
- 1200 shares bought at Rs.150
- 1200 shares sold at Rs.155
- 600 shares bought at Rs.160 again
Now you calculate these numbers using the above formula:
Average price = (1200 * 150) + (1200 * 155) + (600 * 160) / (1200 + 1200 + 600)
= Rs.154
STT for intraday= Rs.46
STT for delivery= Rs.92
Here is how rounding works with STT charges on delivery. In this, the amount will always be written as the roundoff number. If the amount is below 50, it will round off to the nearest rupee and if more than 50 then it will also round off to the nearest rupee. For instance, if the STT is Rs.500.60, it will be rounded off to Rs.501. If the STT is Rs.500.40, it will be rounded down to Rs.500.
Features of Securities Transaction Tax
STT tax is one of the simplest direct taxes that can be measured and levied with ease. There are many features STT provides; some of them are:
- The STT chargesapply to every sale of options and futures contracts without exception.
- In STT calculation, each traded futures contract is priced at its market value at the time of trading while each option contract is priced at its market value.
- The securities transaction tax liability of a clearing member is defined as the sum of all STT liabilities of trading members that are assigned to him.
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Importance of Securities Transaction Tax in India
The Securities Transaction Tax (STT) is a tax that is charged when buying or selling stocks and other securities on the stock market in India. Here is why it matters:
- Helps the Government: The main reason for the STT is to raise money for the government. The tax collected helps fund public services like building roads and supporting welfare programs.
- Keeps the Market in Check: The securities transaction tax also helps the government keep track of trades in the market. It makes sure that everything is fair and helps spot any suspicious trading.
- Can Reduce Trading: If the STT is too high, it can make people think twice before buying and selling too much. This could lead to fewer trades happening because the extra cost might make people less willing to trade.
- People May Choose Other Investments: Some investors might move their money into other types of investments that do not have this tax. This could change the way people invest and affect the market in different ways.
In simple terms, while the STT helps raise money for the government and keeps the market fair, it is important that the tax doesn’t become too high, or it might discourage people from trading.
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STT Charges for Varied Order Types
Here are the new STT charges vs old charges updated after the Union Budget 2025 announcement under the new tax regime:
| Order Type | New STT Charges (Effective from 1st Oct 2024) | Old STT Charges |
|---|---|---|
| Equity Intraday | 0.025% (Rs.25 per lakh) on the sell side | 0.025% (Rs.25 per lakh) on the sell side |
| Equity Delivery | 0.1% (Rs.100 per lakh) on both the buy and sell side | 0.1% (Rs.100 per lakh) on both the buy and sell side |
| Options | 0.125% of the intrinsic or face value on options that are bought and exercised. 0.1% of the premium for options that are shorted. |
0.125% of the intrinsic or face value on options that are bought and exercised. 0.0625% of the premium for options that are shorted. |
| Futures | 0.02% (Rs.20 per lakh) on the sell side | 0.0125% (Rs.12.5 per lakh) on the sell side |
However, the most important question is how this tax should affect you.
The Big Question: How Does STT Affect You?
Security transaction tax (STT full form) plays a crucial role in the stock market, influencing investors, traders and even market dynamics. But is it a friend or a foe? Let’s dive deeper and explore its effects on different market participants.
-
No Tax Evasion
Since STT is auto-deducted at the time of the transaction, there is no way to avoid it. This ensures that all market participants contribute fairly to tax collection, reducing loopholes and tax fraud.
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Easy & Transparent
Unlike capital gains tax, which requires complex calculations and declarations, securities transaction tax is straightforward. It gets deducted automatically and there’s no need to file separate reports or documents.
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Encourages Long-Term Investment
Investors who frequently buy and sell stocks bear a higher securities transaction tax burden compared to long-term investors. This discourages excessive speculation and promotes a more stable market.
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Stable Revenue Source for the Government
STT ensures a continuous flow of money for the government, which can be used for infrastructure, healthcare and other public services.
Let's move towards the last section of this blog which will conclude this entire piece.
To Conclude Securities Transaction Tax
To wrap up, the securities transaction tax isn’t just a tax; it shapes the actions of investors and traders in the stock market. It has an impact on trading costs, stock and bond market liquidity and even investment behavior, which makes it significant in financial planning.
If you plan to stay invested for a long time plan the SIP (Systematic Investment Plan) in the best mutual funds, STT may not be overly concerning, but for high-frequency traders, it can be quite impactful. Understanding how it affects your trades can lead to more cost-efficient strategies and help you to grow your wealth.
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