Taxation
STT
equity mutual fund
Securities Transaction Tax (STT) on equity mutual funds
Securities Transaction Tax (STT) is a tax on equity transactions that applies to equity-oriented mutual fund redemptions and equity ETF transactions. STT was introduced in 2004 with the abolition of long-term capital gains tax (which was subsequently reintroduced in 2018 under Section 112A ).
For Indian mutual fund investors, STT:
- Applies to equity-oriented mutual fund redemptions.
- Required for Section 112A LTCG eligibility.
- Modest absolute amount.
STT rates
Equity-oriented mutual fund redemption
- STT: 0.001% on the sale value at redemption.
- Paid by: Investor (deducted from redemption proceeds).
- Collected by: AMC and remitted to government.
Equity ETF transactions
- STT on equity ETF buy: 0.10% (on delivery-based buy).
- STT on equity ETF sell: 0.025% (on delivery-based sell).
These rates are higher than mutual fund redemption STT because ETFs are exchange-traded.
Impact on returns
For a Rs 10 lakh equity mutual fund redemption:
- STT at 0.001% = Rs 10.
The STT impact is negligible.
Section 112A eligibility
The Section 112A LTCG framework requires:
- STT must be paid on both purchase and sale (purchase STT is in TER components, sale STT explicit).
- For LTCG tax at 12.5% (post July 2024) to apply.
Without STT, the gains would be taxed under different provisions (typically slab rate or Section 112).
See also
- Mutual funds in India
- Equity mutual fund taxation in India
- Section 112A
- Section 111A
- Total Expense Ratio (TER)
- Mutual fund stamp duty
- Mutual fund exit load
- GST on MF fees
- ETF in India
External references
References
- Securities Transaction Tax framework, Finance Act 2004 and subsequent amendments.
- Income Tax Act 1961.