Securities Transaction Tax (STT)

Securities Transaction Tax (STT) is a tax levied in India on the purchase or sale of securities listed on a recognised stock exchange. It was introduced by Chapter VII of the Finance Act 2004 and came into force on 1 October 2004. STT is collected at source by the stock exchange or recognised intermediary and remitted to the central government on behalf of the transacting party. It is distinct from income tax and is payable irrespective of whether the transaction results in a profit or loss.

The introduction of STT in 2004 was accompanied by the simultaneous removal of the long-term capital gains tax exemption that had applied to listed equity shares, replacing an exemption-based system with a transaction-level levy that was harder to evade and simpler to administer. Over subsequent years, Parliament progressively revised STT rates, most recently through the Union Budget 2026-27, which raised the levy on equity-derivative contracts with effect from 1 April 2026, following an earlier increase under the Finance (No. 2) Act 2024 effective 1 October 2024.

Background and legislative history

Before 2004, gains on the sale of listed equity shares held for more than twelve months were fully exempt from capital gains tax under Section 10(38) of the Income Tax Act 1961. This exemption was widely seen as a conduit for tax avoidance, because the distinction between genuine long-term investing and manipulated round-tripping through listed securities was difficult to enforce.

The Finance Minister, in the Union Budget 2004-05, replaced the exemption with STT, arguing that a transaction-level tax was more equitable and harder to circumvent. The Kelkar Committee on Direct Taxes had recommended a similar approach. Chapter VII of the Finance Act 2004 (Sections 98 to 114) established the legal framework, which has since been amended by multiple subsequent Finance Acts.

The tax applies to securities as defined under Section 2(h) of the Securities Contracts (Regulation) Act 1956, which includes shares, debentures, bonds, units of mutual funds, and derivative instruments (futures and options) on recognised exchanges.

Rate structure (current as of 19 June 2026)

STT rates vary by the type of transaction (delivery or non-delivery), the side of the trade (buy or sell), and the instrument category. The following rates reflect the position after the Union Budget 2026-27 amendments effective 1 April 2026, which raised rates on equity F&O contracts.

Equity shares (delivery-based)

Delivery-based transactions are those where the shares are actually transferred to the buyer’s demat account. Both buyer and seller each pay 0.1%, making the round-trip cost 0.2% of the traded value.

Equity shares (intraday / non-delivery)

In intraday equity trades, the position is squared off within the same trading session and no delivery takes place. Only the sell side is taxed. The buyer does not pay STT on an intraday purchase.

Equity derivatives (futures and options), revised April 2026

The derivative rates rose twice in recent years. The Finance (No. 2) Act 2024 increased the futures sell rate from 0.0125% to 0.02% and the options sell rate from 0.0625% to 0.1% of premium, effective 1 October 2024. The Union Budget 2026-27 then raised the futures sell rate from 0.02% to 0.05% and the options sell rate from 0.1% to 0.15% of premium, effective 1 April 2026. The rates above are the current rates as of 19 June 2026.

Mutual funds and ETFs

Purchases of equity mutual fund units on the exchange are not subject to STT at the transaction level (the fund itself may have embedded STT in its portfolio trades).

Unlisted securities

STT does not apply to unlisted securities, off-market transfers, or transactions on foreign exchanges. Gains on such transactions are taxed under the ordinary capital gains provisions of the Income Tax Act without any STT credit or concessional rate.

Legal basis: Chapter VII of the Finance Act 2004

The substantive provisions of STT are contained in Chapter VII (Sections 98 to 114) of the Finance Act 2004. Key sections include:

• Section 98, defines “securities” and “recognised stock exchange” for STT purposes.
• Section 99, lists the taxable securities transactions and the applicable rates (contained in the Schedule to Chapter VII).
• Section 100, specifies who is liable to pay STT (the seller for most transactions; both buyer and seller for equity delivery trades).
• Section 101, imposes an obligation on the stock exchange or clearing corporation to collect STT from the transacting member and remit it to the government.
• Section 105, empowers the Board to prescribe the form for the STT return.
• Section 106, sets the due date for remittance (seventh day of the following month, or the thirty-first of October for the last month of the financial year).

The Central Board of Direct Taxes (CBDT) and the Securities and Exchange Board of India (SEBI) both play roles in the administration of STT: SEBI regulates the exchanges that collect it, and CBDT administers the returns and assessments.

Exemptions and non-applicability

The following transactions are outside the scope of STT:

1. Off-market transfers, transfers of shares between two parties through off-market settlement (demat transfer without going through the exchange order book) do not attract STT.
2. Government securities, transactions in government securities and sovereign bonds on the exchange are exempt.
3. Transactions outside India, purchases or sales on foreign exchanges (NYSE, LSE, etc.) are not within the jurisdiction of Chapter VII.
4. Transfers on account of gift, inheritance, or court order, such transfers do not constitute a sale in the ordinary sense and are not taxable under STT.
5. Initial public offerings (before listing), the allotment of shares in an IPO does not attract STT; the tax applies only when the allotted shares are later sold on the exchange.

Interaction with Section 111A (short-term capital gains on equity)

Section 111A of the Income Tax Act 1961 taxes short-term capital gains (STCG) on listed equity shares and equity-oriented mutual funds at a flat rate of 20% (increased from 15% by the Finance Act 2024, effective 23 July 2024), provided STT was paid on both the acquisition and the sale. If STT has not been paid, for instance, because the shares were acquired off-market, the concessional 20% rate is not available and the gains are taxed at the taxpayer’s applicable slab rate.

The requirement for STT payment on acquisition may be waived by the Central Board of Direct Taxes in notified situations, such as acquisitions through preferential allotment, employee stock option plans (ESOPs), or court-sanctioned mergers, to prevent penalising genuine non-market acquisitions.

Interaction with Section 112A (long-term capital gains on equity)

Section 112A, introduced by the Finance Act 2018, taxes long-term capital gains (LTCG) exceeding one lakh rupees arising from the sale of listed equity shares or equity-oriented mutual fund units. The Finance Act 2024 raised the rate from 10% to 12.5% (effective 23 July 2024). As with Section 111A, the concessional rate applies only if STT was paid on the transaction.

The nexus between STT and the concessional tax rates under Sections 111A and 112A creates an important practical consequence: an investor who transfers shares off-market (for example, to a related party for estate-planning purposes) loses the right to the concessional 20% or 12.5% rate. The entire gain becomes taxable at slab rates, which for high-income taxpayers may reach 30% plus surcharge and cess.

The grandfathering rule for LTCG , which applies to equity held on 31 January 2018, requires that STT was paid on the original acquisition for the grandfathered cost to apply.

Deductibility of STT

STT paid on the purchase of securities that are treated as stock-in-trade (i.e., by traders who treat their securities activity as business income) may be claimed as a business expenditure under Section 36(1)(xv) of the Income Tax Act. This deduction applies only to STT relating to securities that are included in the business’s trading stock; it does not apply to securities held as investments where the gain is offered as capital gains income.

Investors who offer gains as capital gains income cannot deduct STT as a cost of acquisition or improvement. It is also not includible in the cost of acquisition for the purpose of indexation or the Section 112A computation.

Comparison with Commodity Transaction Tax (CTT)

The Commodity Transaction Tax was introduced by the Finance Act 2013 on non-agricultural commodity derivatives traded on recognised commodity exchanges such as the Multi Commodity Exchange (MCX). CTT is structured similarly to STT but applies to commodities rather than securities.

Agricultural commodity derivatives are exempt from CTT. Gold, silver, crude oil, and base metals are the primary commodities subject to CTT.

The October 2024 and April 2026 STT increases on derivatives

The Finance (No. 2) Act 2024 raised STT on equity options from 0.0625% to 0.1% of the option premium (sell side) and on equity futures from 0.0125% to 0.02%, effective 1 October 2024. The Union Budget 2026-27 then raised these rates again, to 0.15% of premium on options and 0.05% on futures (sell side), effective 1 April 2026. As of 19 June 2026, the current rates are 0.05% on equity futures and 0.15% of premium on equity options.

The stated rationale in both Finance Bill memoranda was to discourage speculative activity in the equity-derivatives segment. India’s National Stock Exchange (NSE) had by 2023-24 become the world’s largest exchange by number of options contracts traded, and the derivatives segment was dominated by retail participation, a pattern that the SEBI and the Finance Ministry viewed with concern given the high loss rates reported in the SEBI study on retail F&O participation.

The rate increases were expected to reduce volumes in the high-frequency retail options segment, and the cash-market STT rates on delivery and intraday were left unchanged through both revisions.

Collection and accounting

Stock exchanges collect STT from their member brokers at the time of settlement. Brokers in turn pass the STT charge on to their clients, who see it itemised in their trade contract notes. The STT collected appears as a line item distinct from brokerage, GST, exchange transaction charges, and SEBI turnover fees.

For income tax return purposes, the total STT paid during the financial year appears on the AIS (Annual Information Statement) and the Form 26AS available on the income tax portal. Investors are not required to separately disclose STT in their ITR-2 or ITR-3 beyond including it in the computation of gains; the AIS entry serves as the primary cross-reference for the income tax department.

See also

• Capital gains tax in India
• Section 111A, short-term capital gains on equity
• Section 112A, long-term capital gains on equity
• Grandfathering rule for LTCG
• ITR-2 (Income Tax Return)
• ITR-3 (Income Tax Return)
• Commodity Transaction Tax (CTT)
• F&O taxation in India
• Tax treatment of listing-day gains

References

1. Finance Act 2004, Chapter VII (Sections 98-114), Ministry of Finance, Government of India.
2. Finance Act 2013, Chapter VII (Commodity Transaction Tax), Ministry of Finance, Government of India.
3. Finance (No. 2) Act 2024, clauses amending STT rates effective 1 October 2024 (futures to 0.02%, options to 0.1% of premium), Ministry of Finance, Government of India.
4. Finance Act 2026 (Union Budget 2026-27), revised STT rates effective 1 April 2026 (futures to 0.05%, options to 0.15% of premium), Ministry of Finance, Government of India.
5. CBDT Circular No. 7/2003 (Kelkar Committee background); subsequent CBDT clarifications on STT and Sections 111A/112A.
6. SEBI Study on Analysis of Profit and Loss of Individual Traders Dealing in Equity F&O Segment, January 2023.
7. Income Tax Act 1961, Section 36(1)(xv), deduction for STT on business transactions.
8. Income Tax Act 1961, Sections 111A and 112A, concessional rates for equity capital gains, as amended by Finance Act 2024.