Securities Transaction Tax (STT) on Mutual Funds

UPDATE: Owing to COVID-19 pandemic, interest rate for delayed payments of STT made between 20th March, 2020 and 30th June, 2020 have been reduced to 9% per annum. Moreover, no late fee/ penalty will be charged for delay in this period.

Security Transaction Tax (STT) is levied on trade transactions of securities listed on registered stock exchanges in India. Every time you buy or sell securities such as shares, bonds, debentures or equity oriented mutual funds which are listed on a stock exchange, you are liable to pay STT.

Security Transaction Tax is levied and collected by the Government of India. STT was first introduced in the Union Budget of 2004 and came into effect from October 1, 2004, only. The rate at which STT is levied depends on the type of security such as equity or bonds and type of the transaction i.e buy or sell.

What are the Securities on which STT is Levied?

As per the Securities Contract (Regulation) Act, 1956, STT is levied on the following types of securities:

1. Shares, Bonds, Debentures or other such marketable securities
2. Derivatives
3. Equity Oriented Mutual Funds

Note:

• STT is not levied on private or off-market transactions.
• STT is not levied on debt or debt-oriented funds as well as New Fund Offers (NFO).

Security Transaction Tax Rate

STT is levied at the following set of rates depending on the type of security and nature of the transaction in the current fiscal year:

Security Type	Transaction Type	STT Rate	STT  Levied On
Equity	Buy (Delivery)	0.1%	Purchaser
Equity	Sell (Delivery)	0.1%	Seller
Derivatives- Future	Buy	Nil	–
Derivatives-Future	Sell	0.01%	Seller
Derivative-Option	Buy	Nil	–
Derivative-Option	Sell	0.05%	Seller
Derivative-Option (When Option is exercised)	Sell	0.125%	Purchaser
Equity Mutual Funds	Buy	Nil	–
Equity Mutual Funds- Close Ended/ ETF	Sell	0.001%	Seller
Equity Mutual Funds- Open Ended	Sell	0.025%	Seller
Equity Mutual Funds-Intraday (Non-Delivery)	Sell	0.025%	Seller

Example:

Let’s assume that you invested Rs 1 lakh in an equity mutual fund. The fund’s NAV grew and your investment became Rs 1.5 lakh in value. At this point, you decided to redeem your MF units. At the time of redemption, the concerned AMC will deduct Rs 0.0010% or just Rs 1.5 towards STT.

Does STT Affect Your Capital Gains Tax Liability?

No. STT cannot be claimed as part of your cost of acquisition and it will not reduce your capital gains tax liability. The LTCG on equity mutual funds is 10% and the STCG (Short Term Capital Gains Tax) is 15%. However, it can be claimed as a business expense by persons who trade in shares/mutual funds (professional traders).

You can read about capital gains tax on mutual funds here.