STT

Securities Transaction Tax (STT) is a direct tax levied on the purchase and sale of securities listed on recognised stock exchanges in India. Introduced in 2004 as part of the Finance Act, STT replaced the long-term capital gains tax on equity at the time (which was later reintroduced in 2018). It is collected by the stock exchange and remitted to the central government.

STT rates vary by instrument and transaction type. For equity delivery (buy and sell), the rate is 0.1% on each side (total 0.2% round trip). For intraday equity trades, STT is 0.025% on the sell side only. For futures, it is 0.02% on the sell side. For options, STT is 0.1% on the sell side calculated on the premium (for sellers) or on the intrinsic value at expiry (for exercised options). These rates are set by the Finance Act and can change in the annual Union Budget.

STT is a significant cost for active traders, especially options sellers. When a sold option is exercised at expiry, STT is charged on the settlement value (intrinsic value), not the premium - which can be dramatically higher. A sold Nifty call option at INR 100 premium that expires in-the-money with intrinsic value of INR 500 attracts STT calculated on INR 500. This "STT trap" surprises many F&O traders and explains why most active traders Square Off ITM options before expiry rather than letting them exercise.

The payment of STT is what qualifies equity capital gains for the preferential tax rates - STCG at 20% under Section 111A and LTCG at 12.5% under Section 112A. Without STT payment (e.g., off-market transfers), these preferential rates do not apply.

STT is automatically deducted by the broker and reflected in the contract note. It is not deductible as a business expense for traders filing under the business income head, though it forms part of the cost calculation for capital gains computation.