It is considered common for taxpayers to resort to tax-evading stratagems to preserve their tax flow to the Government. The Government needs to maintain a check on such measures by having stipulations in the law or interject new provisions, modify the current ones to restrain this practice. Proposed in 2004-05, STT charges help to simplify taxation on investing & exchanging in Capital syndicates in India & for investors, made it tax effective as well. It is relevant to see that STT will be accumulated by the broker at the time, the transaction is carried by you. STT is implemented on the value of transactions and charged to traders/investors in the agreement notes assigned to them by their Broker.
Let us know more about STT charges-
Securities Transaction Tax is a tax payable by Investors & Traders to the Central Government. Hence is classified as a Regulatory Charge.
Earlier people began avoiding and concealing tax on capital gains by not disclosing their profits on the sale of assets. The Finance Act, way back in 2004, launched a tax named as the Securities Transaction Tax (STT). STT charges were a medium of a reliable and competent way of receiving taxes from commercial market activities.
The securities transaction tax is a sort of charge levied on profits from bonds. This involves essentially equities and futures and possibilities. The valuation of taxation is distinctive for different kinds of securities. STT can be interpreted as a type of tax levied on deeds performed in the domestic stock exchange. The securities transaction tax is linear and is levied and accumulated by the central government of India.
The most conspicuous feature about securities transaction tax is that the STT charge is relevant only on stake transactions executed in a distinguished stock exchange in the country. Off-market share activities are not included under STT.
Hallmarks of Securities Transaction Tax
STT is a simplistic direct tax and is not quite intricate to calculate or levy. Some of the most differentiating characteristics of STT are listed below-
- STT price is levied on each sell transactions for both opportunities as well as expectations
- For STT calculation, all futures trade is estimated at the exact patronized rate while each option trade is priced at a premium
- The amount STT that a clearing member has to give is the sum of all the STT taxes of exchanging members below them
Securities Transaction Tax Rate in India
The degree of taxation for STT is established by the government and depends upon the nature of security and further on the fact that the transaction is sale or investment. Aside from all the benefits that STT grants concerning the crystalline and convenient payment of tax on trading tools, STT also assures that the inflow of uncertain cash is lessened in any market.
Securities on which STT is Applicable
While the title ‘securities’ is not specified under STT Act, STT Act explicitly permits borrowing of the meaning of such terms not represented in the STT Act but described in the Securities Contracts (Regulation) Act, 1956 of Income-tax Act, 1961. The word ‘Securities’ is specified in the Securities Contracts (Regulation) Act and incorporates the following:
- Shares, scrips, stocks, bonds, debentures, debenture stock, or additional marketable contracts of a similar sort in or of any organized firm or other corporate body derivatives.
- Units or any additional tool issued by some collective investment plan to the investors in such schemes.
- Government securities of equity nature.
- Equity oriented units of a mutual fund.
- Benefits or interest in securities.
- Securitized liability instruments.
Hence, securities combine all of the above; the idea of STT levy that is swapped on a recognized stock exchange. Off-market events are out of the purview of STT.
When is Securities Transaction Tax levied?
The securities transaction tax is levied on every purchase and sale of equity listed on a domestic and approved stock market. The valuation of tax is determined by the administration. All capital exchange transactions that include equity or equity derivatives like futures and options are liable to be charged under the STT act. STT is required as soon as a share transaction is performed. This makes STT quick, transparent, and efficient. Since the tax is levied as soon as the transaction proceeds, cases of non-payment, incorrect amount, etc. are decreased to a point.
The net outcome of this, though, is that it drives up the value of the transactions.
Example of STT Charges:
Assume a businessperson purchases 500 cuts worth Rs.10000 at Rs.20 apiece and trades it at Rs.30 respectively. If the trader auctions the shares the very day then intraday STT charge will apply which is 0.025%.
So, STT = 0.025*30*500 = Rs.375
Likewise, for prospects and options, STT relevant is 0.01%. Suppose a businessperson gets 5 lots of Nifty futures at Rs.5000 and exchanges it at Rs.5010, The sets’ size of nifty is 50 then STT is determined as,
STT = 0.01*5010*50*5 = Rs.125.25
Such tax is consolidated during any time month of the year. The tax so accumulated shall be given to the credit of the Central Government by the 7th day of the month immediately succeeding the month in which it is gathered.
STT charges will linger and cannot be bypassed whether it is the purchase and sale of shares or mutual fund units. After the completion of the year, one can ask their stockbroker to give them a certificate of the STT that you have met through the year. You can use this amount to demand a deduction as your business expense.
Still, having some doubts? Ask our team of stock trading experts.