SECURITIES TRANSACTION TAX

The Securities Transaction Tax (STT) is a type of ‘financial transaction tax’ levied in India on transactions done on the domestic stock exchanges. The rates of STT are prescribed by the central government through its budget from time to time. In tax parlance, this is categorised as a direct tax. The tax came into effect from 1 October, 2004. In India, STT is collected for the Government of India by the stock exchanges. With charging of STT, long- term capital gains tax was made zero and short-term capital gains tax was reduced to 10 per cent (subsequently, changed to 15 per cent since 2008).

The STT framework was subsequently reviewed by the central government in the year 2005, 2006, 2008, 2012 and 2013. The STT rates were revised upwards in the year 2005 and 2006 while it was reduced for certain segments in 2012 and 2013. The STT provisions were altered in the year 2008 such that for professional traders (brokers), STT came to be treated as an expense which can be deducted from the income instead of treating the same as an advance tax paid. [The 2004 STT provisions provided that the STT payments of professional traders, whose ‘business income’ arising from purchase and sale of securities could be set off against their total tax liability.]

As on date, STT is not applicable in case of preference shares, government securities, bonds, debentures, currency derivatives, units of mutual fund other than equity oriented mutual fund, and gold exchange traded funds and in such cases, tax treatment of short-term and long-term gains shall be as per normal provisions of law.

Transactions of the shares of listed companies on the floor of the stock exchange or otherwise, mandated under the regulatory framework of SEBI, such as takeover, buyback, delisting offers, etc., also does not come under

STT framework. The off-market transactions of securities (which entails changes in ownership records at depositories) also does not attract STT.