Most of you will be familiar with the fact that the government levies certain taxes on all the securities transactions in the country. These taxes are usually certain percentage of the selling price or both buying and selling price in some cases. Depending on the asset class, the taxes are categorized into STT (Securities Transaction Tax) and CTT (Commodities Transaction Tax).
Today, we will take a look at both these taxes and also understand the differences between them.
What is STT?
Securities Transaction Tax is the full name of the tax. It is an equities transaction tax that includes mutual funds (not on commodities or currency trades). STT applies to trades conducted on the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), and other recognized stock exchanges.
It is a direct tax levied by the Indian government. It is based on the following factors:
The Securities Section (Equity, Futures & Option, Mutual Funds, etc.)
Transactions involving the purchase or sale of goods.
The type of trade (intraday vs. equity delivery)
a. STT on Equities
Intraday trading will be subject to a Securities Transaction Tax of 0.025 percent on the entire sell amount.
On both the purchase and sell sides of the trade, STT on stocks acquired by delivery is 0.10 percent.
b. STT on Futures
Only the whole sell amount of the trade will be subject to the 0.01 percent Security Transaction Tax Levy on Equity Futures. The STT Fee remains the same for intraday and positional futures trading.
c. STT on Options
On the gross sell amount of the transaction, the Security Transaction Tax Rate on Equity Options will be levied at a rate of 0.05 percent. The STT Rate for options stays unchanged for intraday and positional trading.
d. STT on Mutual Funds
The Security Transaction Tax, which is imposed on equity-based mutual funds, is particularly burdensome on the sale side. It's based on a proportion of the unit price of 0.001%.
What is STT?
Commodity Transaction Tax (CTT) is a tax imposed on traders who trade commodities. It's a tax similar to STT that's applied when you buy and sell commodity futures and options contracts. The CTT tax was implemented in July 2013 and solely applies to non-agricultural commodities like gold, silver, copper, and crude oil.
a. CTT on Futures
On the entire sell value of the trade, a 0.01 percent Commodity Transaction Tax Rate on Futures will be levied. Both intraday and positional trades have the same CTT Rate for Futures.
b. CTT on Options
On the entire sell value of the trade, a 0.05 percent Commodity Transaction Tax Rate on Options will be levied. Both intraday and positional trades have the same CTT Rate for options.
How CTT differs from STT?
The main difference between STT and CTT is that STT is applicable on equities, derivatives and mutual funds whereas CTT is applicable only on commodity derivatives. Also, CTT is applicable only on sell side of the trade, whereas STT is applicable on buy side too in certain cases.
As we discussed, Securities Transaction Tax and Commodities Transaction Tax are levied by the government of India for generating revenue for regulation and growth of the securities and commodities industry. When you trade or invest, it is very important to consider the levied taxes before calculating your net profit or loss. For research-based recommendations in the stock market SignUp with CapitalVia.
Happy Investing!
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