STT for derivatives

Prelims level : Indian Economy Mains level :
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  • Central Board of Direct Taxes (CBDT) clarified that physical settlement in the equity derivatives segment will attract securities transaction tax (STT) of 0.1 per cent.


  • The clarification comes after Mumbai-based stock brokers association ANMI dragged the NSE to court on the levy of STT on the newly-introduced physical settlement of equity derivatives trades.


  • Securities transaction tax, as the name itself implies is tax levied on the value of securities. Securities transaction tax is a direct tax and is levied and collected by the central government of India.
  • Securities transaction tax (STT) was introduced in India a few years ago to curb tax avoidance on capital gains. Earlier, many people usually didn’t declare their profits from sale of stocks and avoided paying capital gains tax. As a result, the government could tax only those profits that had been declared, thus resulting in loss of revenue to the former.
  • Introduced in the Union Budget 2004-05.
  • Transactions in stock, index options, and futures would also be subject to the 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.
  • STT is a neat, efficient, and easy-to-administer tax and it has the great advantage of virtually eliminating tax avoidance.
  • The broker or asset management company (AMC) deducts STT at the source, i.e. at the time of the transaction itself; the net result is that it pushes up the cost of the transaction.

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 similar nature, or of any incorporated company, or other corporate bodies Derivatives.
  • Units or any other instruments issued by any collective investment scheme to the
  • Government securities of equity in nature
  • Rights or interest in securities
  • Equity-oriented mutual funds
  • STT is not applicable for any off-market transaction.
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