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How does securities transaction tax apply to you

Last updated on: June 16, 2009 15:12 IST

When the ministry of finance announced its Annual Budget for the year 2004-2005, it also announced a new tax which would be levied on capital gains on financial securities -- Securities Transaction Tax.

What is the Securities Transaction Tax?

The Securities Transaction Tax was introduced by Chapter VII of the Finance Act (No.2) Act, 2004. STT is a tax being levied on all transactions done on the stock exchanges.

Securities Transaction Tax is applicable on purchase or sale of equity shares, derivatives, equity-oriented funds and equity-oriented mutual funds.

How is STT applied?

STT is applied as following (effective from June 1st, 2005):

a) Purchase/Sale of equity shares, units of equity oriented mutual fund (delivery based) -- 0.10%
b) Sale of equity shares, units of equity oriented mutual fund (non-delivery based) -- 0.02%
c) Sale of derivative -- 0.01%

What items fall under the category of 'securities'?

'Securities' are defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA) to include:

STT is not applicable in case of government securities, bonds, debentures and units of mutual fund other than equity oriented mutual fund.

What are the tax exemptions in regards to short term and long term capital gains?

Long-Term capital gains:

Short-Term capital gains:

Sales of equity shares, units of equity oriented mutual fund (non-delivery based) and sales of derivatives are both treated as business income. If income is shown as business income, one can claim tax rebate under section 88E.

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