STT and CTT on Zerodha trades

Overview

Securities Transaction Tax (STT) and Commodities Transaction Tax (CTT) are transaction-based taxes levied by the central government of India on trades executed on recognised stock and commodity exchanges. They are collected at the source by the exchange, which deducts them from the proceeds of each trade and remits them to the government. Brokers such as Zerodha pass these amounts through to clients as mandatory deductions on the contract note; they are not charges that Zerodha sets or retains.

STT is the single largest statutory cost on most equity and derivatives trades at Zerodha. For a delivery investor buying and selling shares at Rs 1,00,000 each way, STT alone is Rs 200 in a round trip, versus zero brokerage and approximately Rs 10 in other levies. Understanding STT and CTT rates by segment, their legal foundation, and their interaction with income tax is therefore essential for anyone calculating net returns from equity investing or trading.

Legal basis

STT

STT was introduced by Finance Minister P. Chidambaram in the Union Budget 2004-05, enacted as Chapter VII of the Finance (No. 2) Act 2004. The tax was designed as an alternative to the long-term capital gains tax that existed before 2004, simultaneously removing LTCG tax on equity and imposing STT so that market participants who traded on exchanges paid a simple, non-avoidable levy. LTCG on equity was reintroduced at 10 percent by the Finance Act 2018 (Section 112A of the Income Tax Act), but STT was retained. Rates have been revised by successive Finance Acts.

CTT

CTT was introduced by Finance Act 2013, effective 1 July 2013, applying to commodity derivatives traded on recognised commodity exchanges. It was modelled on STT but at lower rates, and applies only to non-agricultural commodities. Agricultural commodity futures and options are exempt from CTT.

Current STT rates (as of mid-2026)

The following rates are those set by the Finance Act 2024 (effective 1 April 2024 for most changes), amended by the Finance Act 2025 for certain derivatives rates:

Note: BSE and NSE both collect STT on behalf of the government. The rates are the same regardless of exchange.

Why STT on delivery is charged on both sides

STT on equity delivery is unique in being charged on both the buy side (on the buyer) and the sell side (on the seller). This means a round-trip delivery trade incurs STT twice – once when purchasing and once when selling. The rationale is that delivery represents an actual transfer of ownership, making both the entry and exit taxable events.

Intraday trades carry STT only on the sell side because no actual ownership transfer occurs in the demat sense – the position is netted within the settlement period.

The expiry STT trap on options

When an in-the-money option is not closed before expiry but is instead allowed to settle at the exchange’s final settlement price, STT is calculated on the settlement value (intrinsic value) rather than on the smaller premium. The rate for exercise/expiry settlement is 0.125 percent of settlement value, compared with 0.1 percent of premium on a normal sell-to-close transaction.

Example: Nifty 23,000 call option, 75 units per lot, Nifty closes at 23,500 on expiry day.

• Settlement value per lot: (23,500 - 23,000) x 75 = Rs 37,500
• STT on exercise settlement: 0.125% x Rs 37,500 = Rs 46.88 per lot
• If sold before expiry at Rs 490 premium: STT on sell = 0.1% x (490 x 75) = 0.1% x Rs 36,750 = Rs 36.75 per lot
• Saving from selling before expiry: Rs 10.13 per lot

For positions of many lots, this saving is material. Zerodha sends alerts before weekly and monthly expiry dates reminding clients of this risk.

CTT rates

Key commodities subject to CTT include gold, silver, crude oil, natural gas, base metals (copper, aluminium, nickel, zinc, lead), and energy products traded on MCX. Agricultural commodities such as cardamom, cotton, castor seed, and guar are exempt.

Historical rate changes

STT rates have been revised several times since 2004:

The 2023 increase in STT on F&O was explicitly intended by the government to discourage excessive retail speculation in derivatives, in response to concerns about the high volume of options trading by retail investors.

STT and income tax interaction

For investors (capital gains regime)

Investors who buy and hold equity shares and are taxed on capital gains (not business income) benefit from concessional tax rates that are conditional on STT having been paid:

• Short-term capital gains (holding period less than 12 months for listed equity): 20 percent under Section 111A (rate raised from 15% to 20% effective 23 July 2024, per Finance Act 2024)
• Long-term capital gains (holding period 12 months or more for listed equity): 12.5 percent under Section 112A on gains exceeding Rs 1,25,000 per year (rate raised from 10% to 12.5%, threshold raised from Rs 1,00,000, both per Finance Act 2024)

STT is not itself deductible against capital gains. The cost of STT is included in the effective cost of acquiring shares (it adds to the total outflow) but is not separately deductible for capital gains computation.

For traders (business income regime)

If a trader’s activities constitute a business (determined by factors such as frequency, volume, and intention), income is assessed as business income. STT paid is deductible as a business expense under Section 36(1)(xv) of the Income Tax Act 1961. This is an explicit statutory deduction, not an implied one. CTT is similarly deductible for commodity traders assessed under business income.

Intraday equity trading income is classified as speculative business income (Section 43(5)), and STT paid on intraday trades is deductible as an expense of that speculative business.

STT as evidence of exchange-traded status

The concessional LTCG rate under Section 112A applies only to transactions on which STT has been paid at the time of transfer. This requirement prevents the rate from being applied to off-market transactions, unlisted shares, or other assets. STT receipts on the contract note serve as documentary evidence that the requisite STT was paid.

Collection mechanism

STT is collected by the exchange’s clearing corporation at the point of trade settlement. The exchange does not rely on the broker to collect STT from the client separately; instead, the client’s proceeds on the sell side (or the client’s debit on the buy side for delivery) are reduced by the STT amount automatically. Zerodha’s system then reflects the STT deduction on the ledger and on the contract note, with a breakout showing the amount of STT paid.

Under Section 100 of the Finance Act 2004, every recognised stock exchange must furnish an annual return to the tax authorities detailing STT collected. Clients who need proof of STT paid for income tax filing purposes can obtain segment-wise STT summaries from Zerodha’s reports section on the Kite portal or from the Zerodha Console back-office platform.

STT on mutual fund redemptions

When units of an equity mutual fund are redeemed, STT is charged at 0.001 percent of the NAV on the redemption value. This applies to the ELSS (Equity Linked Savings Scheme) and open-ended equity fund redemptions. The concessional LTCG rate under Section 112A applies to equity fund redemptions where STT has been paid, covering both fund purchases and redemptions.

Reporting STT for tax returns

For income tax return filing, STT paid is:

1. Not separately reported in the ITR form as a line item for capital gains assessees (it is implicit in the purchase/sale price data).
2. Separately claimed as a deduction on Schedule BP (Business Profession) for traders filing under business income.
3. Supported by the Zerodha tax P&L report, which itemises STT paid segment-wise and is downloadable from Zerodha Console.

Exemptions

The following are not subject to STT:

• Trades in unlisted securities (though these may be subject to capital gains tax at different rates)
• Agricultural commodity futures and options (CTT exemption)
• Government securities (G-secs, T-bills) traded on NDS-OM
• Currency derivatives (forex futures and options on NSE/BSE)
• Interest rate derivatives
• Subscription to mutual fund units (only redemption is taxed)
• IPO subscription (shares are received from the issuer, not from a secondary market transaction)

See also

• Zerodha brokerage structure overview
• Securities transaction tax
• SEBI turnover fee
• Exchange transaction charges
• GST on broking charges
• Stamp duty by segment
• F&O futures brokerage
• F&O options brokerage
• SEBI
• National Stock Exchange
• Bombay Stock Exchange

References

1. Finance (No. 2) Act 2004, Chapter VII (Securities Transaction Tax), Sections 98-110
2. Finance Act 2013, Sections 116A-116E (Commodities Transaction Tax)
3. Income Tax Act 1961, Section 36(1)(xv) – deduction of STT/CTT for business assessees
4. Income Tax Act 1961, Section 111A – STCG on STT-paid equity transactions
5. Income Tax Act 1961, Section 112A – LTCG on STT-paid equity transactions (amended by Finance Act 2024)
6. Finance Act 2024 – revised STT rates on F&O and STCG/LTCG rates
7. Finance Act 2025 – further F&O STT revisions
8. NSE Circular confirming STT collection mechanism
9. Zerodha Tax P&L reports, console.zerodha.com (accessed May 2026)
10. CBDT Notification on annual return by exchanges under Section 100 of Finance Act 2004