Securities Transaction Tax (STT)
- September 21, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Securities Transaction Tax (STT)
Subject – Economy
Context – At ₹11,000 crore, STT mop-up in Apr-Sept closes in on FY22 target
Concept –
- Securities transaction tax (STT) is a direct tax levied at the time of purchase and sale of securities listed on stock exchanges in India.
- Securities are tradable investment instruments such as shares, bonds, debentures, equity-oriented mutual funds (MFs) and so on and are issued either by companies or by the Indian government.
- This tax was introduced in the 2004 Union Budget and came into effect from 1 October 2004.
- STT is governed by Securities Transaction Tax Act (STT Act) and STT Act has specifically listed down various taxable securities transaction i.e., transaction on which STT is leviable.
- While the term ‘securities’ is not defined under STT Act, STT Act specifically allows borrowing of definition of such terms not defined in STT Act but defined in Securities Contracts (Regulation) Act, 1956 or Income-tax Act, 1961.
- The rate of STT differs based on the type of security traded and whether the transaction is a purchase or a sale.
- These rates are decided by the central government.
- The initiative behind introducing STT was to curb evading of capital gains tax on profits earned by transecting in securities.
- Taxable securities include equity, derivatives, unit of equity oriented mutual fund. It also includes unlisted shares sold under an offer for sale to the public included in IPO and where such shares are subsequently listed in stock exchanges. STT is an amount to be paid over and above transaction value and hence, increases transaction value.
- STT is required to be collected by a recognised stock exchange or by the prescribed person in the case of every Mutual Fund or the lead merchant banker in the case of an initial public offer, as the case may be, and subsequently payable to the Government on or before the 7th of the following month.
- In case the above persons fail to collect the taxes, they are still obliged the discharge an equivalent amount of tax to the credit of Central Government within 7th of the following month. Further, failure to collect or, remit whatever has been collected will result in levy of interest and penal consequences too.