STT on ETFs in India

Overview

An exchange-traded fund (ETF) is a pooled investment fund whose units trade on a stock exchange like a share, tracking an index, a commodity such as gold, or a basket of debt instruments. Because ETF units change hands on a recognised exchange, Securities Transaction Tax (STT) can apply to the transaction. The rate, however, is not the equity-share rate, and for several ETF categories it is nil.

The central fact is this: an equity-oriented ETF attracts STT only on the sell side, at 0.001 per cent, which is one hundredth of the 0.1 per cent that equity delivery shares pay on each of the buy and sell legs. Gold ETFs, silver ETFs, debt ETFs, gilt ETFs, liquid ETFs and international ETFs carry no STT at all. This article sets out how STT applies to each ETF type, why the equity ETF rate is so much lower than the share rate, and what the absence of STT means for non-equity ETFs.

For the underlying tax and its segment-wide rates, see Securities Transaction Tax and STT and CTT on Zerodha . For the instrument itself, see exchange-traded funds in India .

Equity ETF: 0.001 per cent on sell only

An equity-oriented ETF, such as a Nifty 50 ETF or a Sensex ETF , holds a portfolio of equity shares and is classified as a unit of an equity-oriented fund for STT purposes. The statute taxes redemption or sale of such units at 0.001 per cent, the same line that covers equity mutual fund redemptions, rather than the 0.1 per cent applied to direct equity shares.

Two features follow. First, the charge is on the sell side only. When an investor buys equity ETF units on the exchange, no STT is deducted; the levy arrives only when the units are sold. Second, the rate is 0.001 per cent of the sale value, a hundredth of the equity-share delivery rate.

The round-trip difference is large. On a Rs 1,00,000 buy and a Rs 1,00,000 sell, equity ETF STT is Rs 1.00 against Rs 200.00 for direct shares. That gap is one of the practical reasons index exposure through an ETF can be cheaper to trade than the equivalent basket of shares, before any difference in brokerage or tracking is considered.

Gold and silver ETFs: nil STT

A gold ETF holds physical gold or gold-linked instruments and tracks the domestic gold price. A silver ETF does the same for silver. Neither is an equity-oriented fund, so neither attracts STT. They also do not attract Commodities Transaction Tax, because CTT applies to commodity derivatives on commodity exchanges, not to ETF units on a stock exchange.

The absence of STT does not improve the capital gains position by itself. Gold and silver ETF gains are taxed under the rules for listed securities applicable in the relevant financial year, and that treatment does not depend on whether STT was paid. The point to take away is narrow: a gold or silver ETF carries no STT line on its contract note, on either the buy or the sell leg.

Debt, gilt and liquid ETFs: nil STT

A debt ETF holds bonds or a bond index; a gilt ETF holds government securities; a liquid ETF holds very short-dated money-market instruments and is used for parking cash and as collateral. None of these is equity-oriented, so none attracts STT. Government securities are in any case outside the STT net entirely, which reinforces the nil treatment for gilt ETFs.

The nil STT on liquid ETFs matters for active traders who sweep idle margin into a liquid ETF between positions. Frequent in-and-out movement that would be costly under a sell-side STT is free of that levy here, leaving brokerage and the small exchange and statutory charges as the only frictions.

International ETFs: nil STT

An international ETF , which gives exposure to overseas indices such as the Nasdaq 100 or the S&P 500 through units listed on an Indian exchange, is not classified as an equity-oriented fund for Indian STT purposes, because its underlying equity is foreign. It therefore carries no STT. The taxation of gains on international ETFs follows their own capital gains rules, which a holder should confirm for the financial year in question.

Comparison table by ETF type

The table below summarises STT treatment across ETF categories. All rates are on the sell side only where applicable; no ETF attracts STT on the buy side.

For comparison, direct equity delivery shares carry 0.1 per cent STT on both buy and sell, equity intraday carries 0.025 per cent on sell, and equity futures carry 0.05 per cent on sell under the rates effective 1 April 2026. The equity ETF sell rate of 0.001 per cent sits well below all of these.

Rationale for the lower equity ETF rate

The statute draws a line between direct equity shares and units of equity-oriented funds. Direct shares represent an actual transfer of ownership of a company, taxed at 0.1 per cent on each side. Units of an equity-oriented fund, including ETFs and equity mutual funds, represent an interest in a pooled vehicle and are taxed at the lower 0.001 per cent redemption rate on sale.

The design avoids charging the full share rate twice over: once when the fund buys the underlying shares inside the portfolio, and again when an investor trades the fund unit. Placing the unit-level charge at 0.001 per cent on sale keeps the pooled-vehicle route lightly taxed relative to assembling and trading the same basket directly. For non-equity ETFs the logic does not arise at all, since STT is an equity-and-equity-derivatives tax by design.

Worked example: equity ETF versus equity shares

Take a Rs 2,00,000 buy and a Rs 2,00,000 sell of a Nifty 50 ETF, then the identical amounts in direct equity shares, each leg a single executed order through Zerodha . Brokerage on delivery is zero in both cases, so the STT difference stands out cleanly.

The equity ETF round trip carries Rs 2.00 of STT against Rs 400.00 on the equivalent share basket, a difference of Rs 398 on a Rs 4 lakh round-trip turnover purely from the STT line. The other charges, exchange transaction charge, SEBI fee, stamp duty on the buy side and GST, apply to both and are roughly equal between them, so the STT gap is the whole of the statutory-cost advantage of the ETF route for index exposure.

Worked example: gold ETF round trip

Now a Rs 2,00,000 buy and a Rs 2,00,000 sell of a gold ETF, again each leg a single order.

The gold ETF carries no STT or CTT on either leg, so its statutory cost is the buy-side stamp duty of Rs 30, the small exchange and regulatory charges with GST on them, and the DP charge of Rs 15.34 on the sell. There is no transaction-tax line at all. The same nil-STT pattern holds for silver, debt, gilt, liquid and international ETFs; only the equity ETF adds the 0.001 per cent sell-side line.

In-kind creation and redemption

Large investors and authorised participants can create or redeem ETF units in kind, exchanging a basket of the underlying securities for ETF units directly with the fund rather than buying units on the exchange. Because the in-kind primary-market transaction does not pass through the secondary-market exchange settlement in the same way as an ordinary on-exchange trade, the STT treatment of the underlying basket transfer follows its own rules, which differ from the simple 0.001 per cent on-exchange unit sale described above. A retail investor buying and selling ETF units on the exchange is in the secondary market and faces the on-exchange treatment set out in this article. The in-kind route is relevant mainly to institutional flows and to how the ETF tracks its index, not to the typical retail cost calculation.

How STT on an ETF appears on the contract note

On a Zerodha contract note, STT is a separate line. For an equity ETF the line shows zero on the buy note and 0.001 per cent of value on the sell note. For a gold, silver, debt, gilt, liquid or international ETF the STT line is zero on both legs. The remaining charges, brokerage, exchange transaction charges , the SEBI turnover fee , stamp duty on the buy side, and GST on the service-fee portion, apply to ETF trades the same way they apply to share trades, since an ETF is delivered into the demat account and a DP charge applies on the sell of any ETF held in demat.

STT and income tax on ETFs

For an investor holding ETF units as a capital asset, STT paid on the sell is part of the transaction outflow and is not separately deductible against capital gains; it is absorbed into the net realised consideration. The presence of paid STT on an equity ETF helps satisfy the STT-paid condition that the concessional equity capital gains rates require, the same condition that applies to direct equity and equity mutual fund units.

For a person whose ETF activity is assessed as business income, STT paid is deductible as a business expense under Section 36(1)(xv) of the Income Tax Act 1961. For non-equity ETFs there is no STT to deduct because none is levied. A holder should confirm the capital gains rate for each ETF type for the financial year in question and consult a chartered accountant where the holding period or head of income is uncertain.

See also

• Exchange-traded funds in India
• Gold ETF in India
• Silver ETF in India
• Debt ETF in India
• Nifty 50 ETF
• International ETF
• Securities Transaction Tax
• STT and CTT on Zerodha
• Statutory charges on trading in India
• Exchange transaction charges
• SEBI turnover fee
• Stamp duty on securities transactions
• GST on broking charges
• DP charges on Zerodha
• Zerodha
• Zerodha brokerage structure overview
• Demat account
• National Stock Exchange
• Bombay Stock Exchange

External references

• Zerodha charges
• SEBI
• Income Tax Department
• AMFI India
• National Stock Exchange ETFs

References

1. Finance (No. 2) Act 2004, Chapter VII (Securities Transaction Tax): units of an equity-oriented fund taxed at 0.001% on sale; equity delivery 0.1% both sides.
2. Income Tax Act 1961, Section 36(1)(xv): deduction of STT for business assessees.
3. Income Tax Act 1961, Sections 111A and 112A: STT-paid condition for concessional equity capital gains rates.
4. Zerodha charges page, zerodha.com/charges (accessed 19 June 2026): equity ETF STT 0.001% on sell; no STT on gold, silver, debt, gilt and liquid ETFs.
5. SEBI (Mutual Funds) Regulations 1996: classification of equity-oriented funds.