What is securities transaction tax

What is securities transaction tax


STT is levied on every purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives or equity-oriented mutual funds units
The securities transaction tax (STT) was introduced in India a few years ago, to stop tax avoidance of capital gains tax. Earlier, many people usually didn’t declare their profits on the sale of stocks and avoided paying capital gains tax. The government could tax only those profits, which have been declared by people. 
To stop this situation, the then Finance Minister P Chidambaram—in the Union Budget 2004-05—introduced STT. Transactions in stock, index options and futures would also be subject to transaction tax. This tax is payable whether you buy or sell a share and gets added to the price of the stock at the time the transaction is made. Since brokers have to automatically add this tax to the transaction price, there is no way to avoid it. 
The Finance Ministry has supported the introduction of the STT to simplify the tax regime on financial market transactions. According to the ministry, STT is a clean and efficient way of collecting taxes from financial markets. In the words, STT is a neat, efficient and easy-to-administer tax and it has the great advantage of virtually eliminating tax avoidance.
STT is levied on every purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives or equity-oriented mutual funds units. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities. STT is deducted at source by the broker or AMC, at the time of the transaction itself, the net result is that it pushes up the cost of the transaction done.
Scope of STT
  • According to the Securities Contracts (Regulation) Act, 1956, STT would be applicable on following securities.
  • Shares, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
  • Derivatives
  • Units or any other instrument issued by any collective investment scheme to the investors in such schemes
  • Security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
  • Government securities of equity nature
  • Rights or interest in securities
  • Equity-oriented mutual funds
  • STT is not applicable for any off-market transaction.
STT rate
  • Finance Minister P Chidambaram in the Union Budget 2013-14 has cut the STT (securities transaction tax) on equities and mutual fund units. STT reduction on ETF is expected to enhance returns with lower transaction costs.
  • The STT charge on equity futures is cut from 0.17% to 0.1%. In the previous Budget, STT was slashed by 0.17% from 0.125% on cash delivery transactions.
  • The STT charge on redemption of mutual funds or ETFs (exchange traded funds) at fund counters is reduced from 0.25% to 0.001%, while STT on sale of MFs or ETFs on stock exchanges is cut from 0.1% to 0.001% levied only on the seller.
Deductions
So the next time, your broker or asset management company sends you your transaction bill or statement, remember that the extra bit you are paying over and above your transaction is nothing but the tax that has been levied. Whether it is purchase and sale of shares or mutual fund units, STT will stay and cannot be avoided. At the end of the year, you can ask your broker to give you a certificate of the STT that you have paid through the year. You can use this amount to deduct from your short term capital gains and get a tax credit.


Comments

Post a Comment

Popular posts from this blog

What are SIPs and how it helps in wealth creation?

What are SIPs and how it helps in wealth creation? As we have already discussed in my previous blog about SIP Investments, I am sharing below post as reminder. Over the past twenty years or so, mutual fund  systematic investment plans  have gained tremendous popularity and have one of the most favored investment choices for retail investors in India. There are a number of advantages in the SIP mode of investing:- The biggest advantage SIP is enabling disciplined investing from your regular monthly savings. You do not have to wait to accumulate a large savings corpus to start investing in mutual funds. You can start with a SIP of just Rs 1,000. Investing small amounts systematically over long periods of time can create substantial wealth for investors through the  power of compounding . We will discuss power of compounding in more details later in this post. The second major advantage of SIP is the  convenience ....
Read more

What is a Covered Call Strategy?

What is a Covered Call Strategy? Let’s consider that you are an investor or you own a property  Now  We will go over a Covered Call Strategy to see how you can profit. In property contest : Imagine you own a  property  and  want to rent it out and even ready to sell the property at predefined price. In this case you will bet on a particular price  and if the price is  achieved  or over  achieved  then you have to sell the property at predefined price.    Imagine you own shares of a company. You feel the stock may rise in the long run but not much in the near term. You would still like to earn an income from the shares in the near term though.  Suppose you are holding 100 shares of ABC company trading at Rs 50 in May. You are bullish on your holdings but are also worried about the downside i.e losses if there is fall in the price. In such a scenario, you can implement a Covered Call option strategy by selling...
Read more

9 top reasons why health insurance claims get denied and steps to overcome them

 The following are some common reasons why most health insurance claims get rejected. We have also advised the steps you should take to avoid rejection.   1) Incorrect information or misrepresentation   While filling out the health insurance application form, you should ensure that all the information you are filling out is accurate. There should be no intentional or unintentional misrepresentation of any information; else, it can lead to claim rejection. The information may be about your:   a. Age,   b. Income,   c. Existing medical insurance policies,   d. Profession (specifically if you are in a hazardous occupation),   e. Hobbies (specifically if you are into adventure sports like hiking or scuba diving), etc.   All the above is material information for the health insurance company to decide whether they should accept the health insurance application and at what premium.   You should fill out the application form yo...
Read more