8. Give the meaning of security transaction tax
Securities Transaction Tax (STT) is a direct tax levied by the Indian Government on the purchase and sale of securities (like shares, derivatives, and equity mutual funds) listed on recognized stock exchanges. [1, 2, 3]
Key Characteristics at a Glance
- Transaction-Based: It is charged automatically on the total value of the transaction.
- Profit is Irrelevant: STT is charged regardless of whether your trade results in a profit or a loss.
- Collected at Source: Stockbrokers and fund houses automatically calculate and deduct STT, remitting it directly to the government on your behalf. [1, 3, 4, 5]
Why it Exists
- Prevents Tax Evasion: Introduced to ensure investors accurately report their capital gains by capturing revenue at the moment of trading.
- Curbs Speculation: By increasing the cost of trading, especially in the volatile Futures & Options (F&O) segments, it is used to discourage excessive speculation. [1, 7]
For comprehensive details on applicability and current rates, you can refer to the ClearTax Securities Transaction Tax Guide or the Kotak Neo STT Guide.
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