STT Full Form

What is the full form of STT?

This tax was included in the 2004 Union Budget and went into force on October 1st. Securities Transaction Tax or STT was created to reduce capital gains tax evasion on earnings made from trading securities. A tax is imposed on the sale and purchase of securities listed on the Indian stock exchanges. STT is a sort of financial transaction tax that must be paid in India on each purchase or sale of securities listed on the Indian stock exchange. The National Stock Exchange, also known as the NSE, and the Bombay Stock Exchange, called BSE, are the two primary stock markets. Shares, derivatives, or investment units in equity-oriented mutual funds would all fall under this category (excluding commodities and currency). Off-market transactions, money, or commodity transactions are exempt from the levy. The Central / Union Government periodically establishes the STT rates through its budget. This is referred to as a direct tax in the context of taxes.

When stocks are bought and sold on the Indian stock exchange, a tax known as the STT is applied. The Securities Transaction Tax Act governs STT (STT Act). Equity derivatives, equity-oriented mutual fund units, unlisted shares sold under an offer for sale to the public included in an initial public offering (IPO), and shares that are subsequently listed on stock exchanges are all examples of taxable securities.

What is the STT rate? How is STT calculated

The rate of STT is decided by the government and it is like a tax paid at the source. The STT collection provisions function similarly to tax deducted at the source (TDS). In the case of an IPO, STT is collected by the lead merchant banker or a recognised stock exchange. Depending upon the type of security transferred and whether the operation is a purchase or a sale, the STT rate varies. For example, while buying an equity share, both the purchaser and the seller must pay 0.1 per cent of the share value as STT.

The SST Charge and Its Features

SST is the most basic type of direct tax. Its application or levy is not complicated. The following is a brief description of this simple but significant tax's features:

• In the case of futures and options contracts, the SST fee is assessed on each sell transaction.

• An SST tax will be applied to all sell transactions involving any futures and options contracts. Every future contract is valued at the genuine transacted price to calculate this tax. With options contracts, the trade is worth more than usual.

• The sum of all SST taxes paid by trading persons under a clearing member must be considered when determining the amount of SST the member is required to pay.

STT Applicability

Knowing the definition of STT today may make it necessary for you to understand which securities are subject to the tax. In terms of the domestic stock exchanges in India, STT is imposed on any applicable transactions. The following security transactions are regulated by the Securities Contract Act of 1956:

• Any marketable security traded on the stock market, including bonds, shares, debentures, and other.

• Anything that is exchanged in the marketplace as a derivative.

• Any units that clients receive as part of a collective investment plan.

• Any rights or interests in securities.

• Mutual funds that trade in stocks.

• Any government securities with an equity-like character.

STT Exemption under Income Tax

According to Section 36 of the Income Tax Act of 1961, STT may be claimed under income tax if the amount you paid for STT is recognised as a business expense and you are reporting share income under the heading "Profits/Gains from Business and Profession"—that is, if you are trading stocks for a living and doing so from a business perspective.

However, gains or losses in such cases can be classified as short-term capital gains or long-term capital gains depending on the period for which the stocks were held. If an assessee is an employee or self-employed person who transacts in stock transactions only for investment purposes and whose primary occupation is not the trading of securities.

Scope of STT

The following securities would be subject to STT under the Securities Contracts (Regulation) Act of 1956.

• Securities of a similar character in or of any incorporated corporation or other corporate entity, including shares, bonds, debentures, debenture stock, and other marketable securities.

• Derivatives

• Units or any other instrument offered to participants in any collective investment plan by such a scheme

• The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002's definition of a security receipt are found in section 2(zg).

• Government securities with an equity component.

• Securities rights or interests.

• STT is not applicable for any off-market transactions involving equity-oriented mutual funds.

Income tax and STT

Whether the activity of buying and selling shares or derivatives is categorised as an investing activity or a business activity determines whether the loss or profit from securities transactions is subject to taxation. Whether the revenue from these securities trading is included under the category "Income from Capital Gains" or under the head "Profits and Gains of the business or profession affects how STT is handled.