When it comes to investing and trading, many investors understand the concept of capital gains tax. However, they may not know that they pay another direct tax to the government on the purchase and sale of securities. It is Security Transaction Tax (STT) and was introduced in 2004.
Let’s understand what a Security Transaction
Table of contents
- What is the security transaction tax?
- What are the features of the securities transaction tax?
- How Securities Transaction Tax (STT) Works in India
- Role and importance of Securities Transaction Tax (STT) in India
- STT calculation examples for different transaction types (2026)
- STT on mutual funds: Is STT applicable to mutual fund investments?
- How does securities transaction tax affect investors?
- Current STT rates in India (Updated for 2026)
- Impact of STT on different types of investors and traders
- Levy of Securities Transaction Tax (STT) in India
What is the security transaction tax?
STT is a direct tax imposed on transactions involving securities such as stocks, derivatives, and equity-oriented mutual funds. STT full form is Securities Transaction Tax. It is collected at the time of trade execution, both on the purchase and sale of securities. STT applies to transactions conducted on stock exchanges and is charged at different rates depending on the type of security being traded.
What are the features of the securities transaction tax?
Securities transaction tax (STT) was introduced to bring transparency to securities transactions and simplify the taxation framework for market participants. Key features of STT include:
- Point of collection: The tax is collected by the exchange at the time of trade execution and is then remitted to the government. STT also eliminates the need for tracking individual capital gains on securities transactions for tax purposes.
- Applicable to specified securities: STT is applicable to transactions in equity shares, derivatives, equity-oriented mutual funds, and other specified securities traded on recognised stock exchanges.
- STT Rate: The STT rate is levied based on the type of security being traded. However, the Securities Transaction Tax is applicable to all transactions irrespective of whether they result in a gain or loss. The rates of STT are determined by the government and may be revised periodically.
How Securities Transaction Tax (STT) Works in India
| Aspect | Explanation |
| When is it charged? | STT is charged at the time of buying or selling eligible securities on stock exchanges such as NSE or BSE. It is applied automatically when the trade is executed. |
| Who collects it? | The stock exchange collects STT on behalf of the Government of India and remits it accordingly. Investors do not pay it separately. |
| On which instruments does it apply? | STT applies to equity shares, equity oriented mutual funds, equity ETFs, and equity derivatives such as futures and options, at prescribed rates. |
| Who pays STT? | Depending on the transaction type, STT may be charged on the buyer, the seller, or both. For example, in delivery-based equity trades, it is typically charged on both sides, while in equity futures it is generally charged on the seller. |
| How is it calculated? | STT is calculated as a percentage of the transaction value. The rate varies based on whether the trade is delivery based, intraday, or derivative. |
Role and importance of Securities Transaction Tax (STT) in India
Securities transaction tax (STT) plays an important role in India’s financial market ecosystem by supporting transparency, improving tax compliance, and simplifying taxation of securities transactions. STT applies to specified securities traded on recognised stock exchanges and forms part of the broader regulatory framework governing capital markets.
Enhancing tax transparency: STT is automatically collected at the time of trade execution. This reduces manual reporting requirements and helps create a transparent audit trail for equity market transactions.
- Minimises under reporting of securities transactions
- Enables efficient monitoring of exchange traded activities
- Supports formalisation of capital market participation
Simplifying capital gains taxation: The introduction of STT allowed the government to implement concessional capital gains tax structures for equity oriented investments.
- Equity capital gains tax treatment is linked to payment of STT
- Creates a standardised taxation mechanism across exchange traded equity instruments
Supporting regulatory oversight: Since STT applies only to transactions executed on recognised exchanges, it encourages market participants to transact within regulated platforms overseen by .
- Strengthens investor protection mechanisms
- Promotes orderly market functioning
Revenue generation for the government: STT provides a steady source of tax revenue derived from trading activity without requiring separate tax filings by investors.
STT calculation examples for different transaction types (2026)
As per Union Budget 2026 announced on February 1, 2026, the Government of India revised Securities Transaction Tax (STT) rates primarily for derivatives transactions. The updated rates become effective from April 1, 2026. The changes mainly impact futures and options trading, while equity delivery and intraday STT rates remain unchanged.
The examples below are simplified illustrations explaining how STT is calculated under the revised 2026 framework. Actual brokerage charges and statutory levies are excluded for clarity.
| Transaction type | STT applicability | Assumed trade example | Revised STT rate (from Apr 1, 2026) | STT calculation | STT payable |
| Equity intraday trade | Charged on sell side only | Buy 1,000 shares at ₹100 and sell same day at ₹102 | 0.025% on sell value | ₹1,02,000 × 0.025% | ₹25.50 |
| Equity delivery trade | Charged on both buy and sell | Buy 500 shares at ₹200 and sell later at ₹220 | 0.1% on buy + 0.1% on sell | Buy: ₹1,00,000 × 0.1% = ₹100 Sell: ₹1,10,000 × 0.1% = ₹110 | ₹210 total |
| Equity futures | Charged on sell side only | Sell futures contract worth ₹10,00,000 | 0.05% | ₹10,00,000 × 0.05% | ₹500 |
| Equity options (sell – premium based) | Charged on option seller | Sell options with premium value ₹50,000 | 0.15% | ₹50,000 × 0.15% | ₹75 |
| Equity options (exercise) | Charged when option is exercised | Option exercised with settlement value ₹5,00,000 | 0.15% | ₹5,00,000 × 0.15% | ₹750 |
Key observations under Budget 2026:
- STT on futures increased from 0.02% to 0.05%.
- STT on options premium and exercised options increased to 0.15%.
- Equity delivery and intraday equity STT rates remain unchanged.
STT on mutual funds: Is STT applicable to mutual fund investments?
STT is applicable to equity-oriented mutual funds. Investors who buy or sell units of these funds through stock exchanges are subject to STT. However, STT is primarily levied on the redemption of equity mutual funds at the time of sale rather than on their purchase.
How does securities transaction tax affect investors?
Securities transaction tax (STT) directly influences the cost structure of investing and trading in exchange traded securities in India. Since it is levied automatically on eligible transactions, investors experience its impact through transaction expenses and taxation outcomes rather than through separate tax payments.
- Increased transaction cost: STT (full form: Securities Transaction Tax) adds to the overall cost of trading. This may impact the trading frequency and profitability of certain securities. Exiting buyers and sellers may find it harder to buy and sell their securities easily and this may affect the market liquidity.
- Influence on investment horizon: Since STT applies to every transaction, short-term traders and high-frequency traders experience a higher tax burden. So, it indirectly promotes long-term investing by making frequent trading costlier.
- Lower profitability: Securities Transaction Tax is levied on transactions irrespective of whether it results in a gain or a loss. This means the gain will be reduced from successful trades and the losses will be increased from unsuccessful trades. Investors must account for STT when calculating net gains since it reduces the overall profitability of transactions.
- 01%. It is levied on the sale of units of equity-oriented mutual funds.
Read Also: Difference between short-term and long-term capital gains tax
Current STT rates in India (Updated for 2026)
The Government of India revised Securities Transaction Tax (STT) rates in Union Budget 2026, with changes effective from April 1, 2026. These updates principally affect equity derivatives (futures and options), while STT on cash equity trades remains unchanged.
| Transaction type | STT rate before Apr 1, 2026 | STT rate from Apr 1, 2026 |
| Equity delivery (buy) | 0.1% | 0.1% |
| Equity delivery (sell) | 0.1% | 0.1% |
| Equity delivery mutual fund units (sell) | 0.001% | 0.001% |
| Equity intraday (non-delivery sell) | 0.025% | 0.025% |
| Equity futures (sell) | 0.02% | 0.05% |
| Equity options (sell premium) | 0.1% | 0.15% |
| Equity options (exercise) | 0.125% | 0.15% |
*The tax information (if any) in this article is based on current laws and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
Impact of STT on different types of investors and traders
The impact of Securities Transaction Tax (STT) varies across investors and traders, depending on transaction type and strategy. Delivery-based equity investors pay STT on both buy and sell trades, which marginally reduces long-term returns. Intraday equity traders are charged STT only on the sell side, which can affect short-term profit margins. In derivatives, equity futures attract STT on the sell side, while equity options incur STT on the premium received at sale and on exercise of in-the-money contracts, making trading costs structure-specific. By understanding these distinctions, investors and traders can better account for STT in their strategies, manage costs more effectively, and make informed choices about holding periods and transaction frequency.
Levy of Securities Transaction Tax (STT) in India
STT is levied under the Finance Act 2004 and administered by the Income Tax Department of India. The responsibility for the collection of Securities Transaction Tax lies with stock exchanges and clearing corporations. This ensures seamless tax collection without investor intervention and reduces tax evasion in the securities market. The collected tax is deposited with the government, making STT an efficient revenue stream.
In conclusion, Securities Transaction Tax (SST) plays a crucial role in India’s financial ecosystem by ensuring fair taxation of securities transactions. While it increases transaction costs for investors, it simplifies tax compliance and contributes to government revenue. Investors must be aware of STT rates and their implications while investing in mutual funds and engaging in stock market activities to make informed financial decisions.
FAQs:
When was STT introduced in India?
It was introduced in 2004 to streamline securities taxation while ensuring transparency and ease of collection.
How is STT calculated with an example?
Securities Transaction Tax is calculated as a percentage of the transaction value and is deducted at the time of trade execution. SST rates vary based on security type.
Which transactions are subject to STT?
STT applies to transactions involving equity shares, derivatives, equity-oriented mutual funds, and other specified securities traded on recognised stock exchanges in India, including buy and sell transactions, intraday trading, futures, options, and mutual fund redemptions.
How is STT different from other taxes like capital gains tax?
STT is levied on transaction value at the time of trade, while capital gains tax is based on profits earned from the sale of securities.
What are the consequences of non-payment of STT?
If you do not pay Securities Transaction Tax, it can lead to penalties, interest charges, and legal consequences. It may also impact tax calculations and eligibility for capital gains tax benefits.
What is the full form of STT?
STT stands for Securities Transaction Tax. It is a direct tax levied by the Government of India on the value of certain securities transacted through recognised stock exchanges. The tax applies when eligible securities are bought or sold on the exchange.
Can you avoid STT charges in India?
No. STT cannot be legally avoided on transactions where it is applicable. It is automatically collected by the exchange or prescribed person at the time of trade execution and remitted to the government. Avoidance is not permissible under current regulations.
Is Securities Transaction Tax (STT) refundable in India?
No. STT paid on eligible trades is not refundable. It is a tax collected at the time of the transaction and does not qualify for refund irrespective of profit or loss on the trade.
What is an example of a Securities Transaction Tax in India?
When you sell equity shares on a recognised Indian stock exchange, STT at 0.10% on the sale value is charged and collected at the transaction. Similarly, selling units of an equity-oriented mutual fund attracts STT at 0.001% of the sale value.
Who pays Securities Transaction Tax (STT) – buyer or seller?
Who pays STT depends on the transaction type. For equity delivery trades, both buyer and seller pay 0.10% each. For non-delivery trades, derivatives, and mutual funds, the seller typically pays. The exchange or prescribed person collects STT.
Who pays STT on equity?
In equity delivery transactions, both buyer and seller pay STT at 0.10% of the transaction value. For intraday equity trades, STT at 0.025% is typically paid by the seller.
Is STT applicable on ETFs & mutual funds?
Yes. STT at 0.001% is applicable on the sale of units of equity oriented mutual fund ETFs and schemes. Debt-oriented mutual funds are not subject to STT.
Is STT a direct or indirect tax?
STT is a direct tax levied on transactions involving securities executed on recognised stock exchanges in India. It is collected at source and remitted to the government.
Which fund is exempt from STT?
Debt oriented mutual funds and non-equity ETFs are exempt from STT. Only equity oriented mutual funds and equity ETFs attract STT at the time of sale.
What is the new STT rate on options in India?
Effective from 1 April 2026, the STT rate on sale of equity options premium is 0.15% of the premium value, and on options exercised it is also 0.15%.
What is the new STT rate for futures in Budget 2026?
Post the 2026 Union Budget, the STT on equity futures is proposed at 0.05% on the sell side of the contract value, up from the earlier 0.02%.
Was the STT rate increased in Budget 2026?
Yes. The 2026 Union Budget proposed higher STT rates on equity derivatives, raising the rate on futures to 0.05% and on options (premium and exercise) to 0.15%, effective from 1 April 2026.
What is STT in the stock market?
In the stock market, STT is a tax charged on the value of specific securities when bought or sold on recognised stock exchanges. It applies to equities, derivatives, and certain mutual fund units, increasing transaction cost for market participants.
What is the current STT rate in India?
Current STT rates vary by transaction type: equity delivery at 0.10%, intraday equity at 0.025%, equity futures at 0.05%, equity options at 0.15% on premium and exercise, and equity oriented mutual funds at 0.001% on sale.
