Security transaction tax (STT)
It is a tax payable on the value of securities which a trader trades with on any listed exchange. STT is payable by investors and traders to the central government, however, this is not chargeable in commodities and currencies. To stop tax avoidance on capital gains it was introduced in India in 2004. As people does not declare their profits, the government could tax only those profits which people explicitly declare. With STT now taxation on investing and trading have been simplified to a certain extent.
STT will be charged in all the transactions in stocks, futures, and options whether you buy or sell a share. Share price includes its price in it and there is no way to avoid it as this tax is automatically added to the Transaction price.For buying and selling securities listed on the exchange a trader must have a demat accountand trading account.
Following are the security transaction tax rate:
- Buying or selling of stocks – STT is 0.125% of the value of the total transaction.
- Squaring off position/ not taking delivery: STT is 0.025%
- Under derivative contracts: STT is 0.017%(charged only to seller)
Commodity transaction tax(CTT)
CTT was introduced in the union budget of 2013-14 as there is no major difference between derivative trading in securities or commodities. The only difference is the underlying asset is different in both.This tax is applicable to traders and investors dealing with commodities other than agricultural commodities as they are exempted from CTT. On all the other commodities like gold, silver, crude oil, natural gas, lead, nickel, zinc this tax will be charged.Earlier to an introduction of it there was no such tax charged in a commodity market.Trade volumes on MCX and other commodity exchange declined after this tax become effective while trading in commodity market.
Prior to this CTT was introduced in 2008-09 as well. With this tax, the transaction cost of trading in non-agricultural commodities increased and imposed an additional burden on traders and investors as already they are required to pay other charges like brokerage, stamp duty and more. Services of discount brokers help in saving these extra costs to some extent as they charge less brokerage only on executed orders and no additional restrictions are imposed.
At the end of the year, you can ask your brokers for a certificate stating the amount of STT and CTT you have paid throughout the year. This will help you to get a tax credit by getting this amount deducted from short-term capital gain.