Investing / Trading

STT - All you need to know

Marisha Bhatt · 08 Jul 2025 · 6 mins read · 3 Comments
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The primary purpose of investment is to earn a more or less stable source of additional income, along with wealth creation in the long term. However, it is not so simple. One of the critical factors to consider is taxation. While there are multiple taxes levied on profits and returns from investments, if you are a regular in the stock market, one form of tax you cannot escape is the STT. Although it is the first point of taxation in stock markets, many investors are woefully unaware of STT and its related details. Check out this blog to learn about STT and important information that is essential for investors.

What is STT (Securities Transaction Tax)?

What is STT (Securities Transaction Tax)

The Securities Transaction Tax (STT) is a tax levied by the Indian government when shares and other securities are bought or sold on the stock market. It was introduced in 2004 to reduce tax evasion and make the process of collecting tax simpler and more transparent. Traders and investors do not have to separately pay this tax, as in the case of capital gains that are filed separately. This tax is directly levied through a stockbroker on the purchase or sale of the security, as the case may be, and STT is automatically included in the total cost of the transaction. 

STT is charged at different rates depending on the type of transaction. For example, if you buy shares, the rate may be lower or even zero, but when you sell them, especially in the short term or in intraday trading, the rate can be higher. STT applies to trades made on recognised stock exchanges (like NSE or BSE) and is levied on securities like equity shares, derivatives (like futures and options), mutual fund units (traded on exchange), etc. It is an important part of how the government earns revenue from the stock market and ensures that all traders contribute fairly.

What are the features of STT?

What are the features of STT

Let us now look at the top features of STT to understand its correct levy and the latest changes implemented by the regulators.

  • Direct Tax - STT is a direct tax charged by the government on buying or selling securities.

  • Applies to Stock Market Trades - It is applicable only to transactions done through recognised stock exchanges like NSE and BSE.

  • Automatic Deduction - STT is deducted automatically by the stockbroker at the time of the transaction, and there is no need to pay it separately.

  • Different Rates for Different Trades - The tax rate varies depending on the type of transaction, such as equity delivery, intraday, futures, or options.

  • Charged on Buy/Sell or Both - In some cases (like delivery-based trades), STT is charged on both buying and selling, while in other cases (like intraday), it may be charged only on selling.

  • Covers Various Securities - STT applies to equity shares, equity-oriented mutual funds (traded on the exchange), futures, options, and other listed securities.

  • Helps in Tax Compliance - Since it is collected at the source, STT reduces chances of tax evasion and makes the process transparent.

  • Affects Trading Costs - STT adds to the overall cost of trading, so it is important for traders and investors to factor it into their profit calculations.

  • Not Applicable on Off-Market Transactions - STT is only charged on exchange-traded transactions, not on private or off-market deals.

How does STT work?

STT, as mentioned above, is a direct tax that was introduced as a measure to avoid cases of tax evasion and apply a standardised taxation regime for all securities transactions. The government introduced the STT in the Finance Act 2004, and multiple amendments have followed this Act to date. It is a tax levied on notified securities as a nominal percentage of the transaction value (depending on the type of security) and payable by the notified entity. The STT rates as per the latest revision and applicable from 1st October 2024 are tabled below. 

How does STT work

Instrument 

STT Rate

Charged On 

Paid By

Transaction Value for STT

Equity Delivery Trades

0.1%

Buy and Sell

Buyer and Seller

Total trade value (price × quantity)

Equity Intraday Trades

0.025%

Sell side only  

Seller  

Sell-side trade value

Equity Futures Contract

0.02%

Sell side only  

Seller  

Contract value (price × lot size)

Equity Options (sell premium)

0.1% of premium value

Sell side only  

Seller  

Option premium (premium × lot size)

Equity Option (Exercised Contracts) 

0.125% of intrinsic value

On Exercise 

Buyer

Intrinsic value (settlement price – strike) × lot size

Equity-Oriented Mutual Funds 

0.001%

Sell side only  

Seller  

Total sell transaction value

Off-Market Transactions 

Not Applicable 

-

-

Not subject to STT

Where is STT applicable?

STT (Securities Transaction Tax) is levied on notified securities, which are updated by the government from time to time. Here is a list of securities where STT is applicable and not applicable as per the latest amendments to the Finance Act 2004. 

Securities Where STT Is Applicable

Securities Where STT Is Applicable

  • Equity Shares (delivery-based and intraday trading)

  • Equity Futures

  • Equity Options (when sold and exercised)

  • Equity-Oriented Mutual Funds / ETFs

  • Units of REITs / InvITs traded on the exchange

  • Securitised Debt Instruments (listed & equity-linked)

Securities Where STT Is Not Applicable

Securities Where STT Is Not Applicable

  • Off-market share transfers

  • Unlisted shares or securities

  • Debt Mutual Funds, Bonds, Debentures

  • Government Securities (non-equity in nature)

  • Sovereign Gold Bonds (SGBs)

  • Currency and Commodity Derivatives

  • Buybacks (via tender offer or private deal)

How does STT impact traders and investors?

How does STT impact traders and investors

STT is a direct cost for traders and investors that affects the overall portfolio. Thus, it is important to understand the impact STT has on determining the true profitability and achieving investment goals. Here is a brief analysis of the same. 

Increases the Cost of Trading

STT adds to the total cost of buying and selling securities. For delivery-based trades, it is charged on both buying and selling. For intraday and derivatives trading, it is mostly charged on the selling side. This means every trade becomes slightly more expensive. For frequent traders, these small charges can add up and affect overall profits.

Affects Strategy in Derivatives Trading

STT rates are different for futures and options. For options, it is charged on the premium when sold and on the intrinsic value if exercised. This can make option exercises costly, and many traders avoid exercising options for this reason. Futures traders also need to account for STT when calculating their break-even points.

Reduces Net Profits, Especially in Short-Term Trades

Since STT is a direct cost deducted during each transaction, it reduces the net profit from trades. This has a bigger impact on intraday traders and derivatives traders who operate on small margins and high volumes. Even if a trade is profitable before charges, STT can eat into that profit after all costs are considered.

Long-Term Investors Have a Smaller Impact

For long-term equity investors who buy and hold shares, STT is less of a concern. They only pay STT once when buying and again when selling. Since they hold shares for a longer time, the impact of STT is minor compared to the total gains from the investment.

Cannot Be Claimed as a Refund, but Can Be Used in Tax Filing

STT paid cannot be refunded or adjusted. However, it can be used to reduce your capital gains tax liability in certain cases. For example, under the Income Tax Act, STT paid is allowed as an expense when calculating business income for traders.

Impacts High-Frequency and Algorithmic Trading More

Traders who use automated systems or high-frequency trading strategies are more affected because of the large number of transactions. Even a small STT per trade can reduce overall profitability significantly at high volumes.

Conclusion

STT is a mandatory cost on equity trades in India that directly affects both traders and investors. Over the years, there have been many changes in this tax based on the changing scenario of the Indian stock markets. STT has, thus, also proved to be a valuable tool to bring standardisation and curb cases of tax evasion in the securities market, thereby ensuring a fair and transparent platform for all participants in stock markets. 

We have discussed a very important aspect of investing and taxation in this article. Let us know your thoughts on the topic or if you need further information on the same, and we will address it. 


Read More: New Tax Bill - All You Need to Know

Marisha Bhatt

Marisha Bhatt is a financial content writer @TrueData.

She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.

3 Comments
J
Jegan Reddy
· July 09, 2025

Is STT previlaged from income tax?

2 1 ·
A
AshwinKanth
· July 09, 2025

Good post

2 1 ·
S
Shreya
· July 09, 2025

I am a big fan of your blog—especially mutual fund blogs, looking for more.

2 1 ·