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NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Equity Products

Securities Transaction Tax (STT) and Other Transaction Costs

Updated 11 October 2026 · Fact-checked

STT is a tax charged on the value of specified trades on recognised Indian exchanges. The rate depends on the product and on whether you buy or sell. It is not deductible from capital gains. For the concessional 112A LTCG rate, STT must have been paid as the law requires. Solve questions by identifying product, side and base.

Understand Securities Transaction Tax (STT) and Other Transaction Costs

Securities Transaction Tax (STT) is a tax on transactions in listed securities, levied at a fixed rate on the transaction value. It is collected by the exchange or the intermediary at the time of the trade. You do not file a separate STT return for ordinary trades.

The rate depends on three things: the product (equity share, equity mutual fund unit, future, option), the type of trade (delivery or intraday) and the side (buyer or seller). So always ask: what is traded, who pays, and on what value?

The rates below are the ones set from 1 October 2024. STT rates are changed through Finance Acts, so check the rate table in your current workbook version. On equity delivery trades, both buyer and seller pay 0.1% of the value. On intraday (non-delivery) trades, only the seller pays 0.025%. On futures, the seller pays 0.02% of the trade price. On options, the seller pays 0.1% of the premium. If an option is exercised, the buyer pays 0.125% of the settlement price. On equity-oriented mutual fund units, the seller or redeemer pays 0.001%, and nothing is charged on purchase.

STT matters in two other ways. First, it decides whether the concessional capital gains regime applies. Under Section 111A, short-term gains on listed equity shares and equity-oriented fund units are taxed at 20% if STT is paid on the transfer. Under Section 112A, long-term gains above ₹1,25,000 in a year are taxed at 12.5%. The holding period for long term is more than 12 months. For listed shares, STT must be paid on both acquisition and transfer, subject to notified exceptions. For equity-oriented fund units, STT is needed on transfer only.

Second, STT is not deductible in computing capital gains. It is not part of the cost of acquisition or the expense of transfer. For F&O or intraday trading taxed as business income, STT paid is allowed as a business deduction. Other costs are brokerage, GST on brokerage, exchange transaction charges, SEBI turnover fees and stamp duty. For capital gains, brokerage is generally an expense of transfer or part of cost. Stamp duty on purchase is part of cost.

Key formulas to remember

STT on equity delivery
0.1% of value on buyer AND 0.1% of value on seller
Both sides pay on delivery-based trades in listed equity shares.
STT on intraday equity
0.025% of sale value, seller only
The buyer pays no STT on a non-delivery trade.
STT on futures
0.02% of trade price, seller only
Applies to equity futures. The buyer pays nothing.
STT on options
0.1% of premium on sale; 0.125% of settlement price on exercise
The seller pays on sale. The buyer pays only if the option is exercised.
STT on equity-oriented MF units
0.001% of value on sale or redemption
No STT on purchase of units.
Concessional rates
STCG 111A = 20%; LTCG 112A = 12.5% on gains above ₹1,25,000
Need STT paid as the law requires. Long term means held more than 12 months.
STT and gains
Capital gain = Sale value − Cost − Transfer expenses (STT excluded)
STT is not deductible for capital gains. It is deductible if the income is business income.

How to solve Securities Transaction Tax (STT) and Other Transaction Costs questions

Use this order for any STT or transaction cost question.

  1. 1Identify the product: equity share, equity fund unit, future or option.
  2. 2Identify the trade type: delivery or intraday. Check if the option was exercised.
  3. 3Identify who pays: buyer, seller or both.
  4. 4Find the base: trade value, futures price, option premium or settlement price. Apply the rate.
  5. 5Decide the head of income: capital gains or business income.
  6. 6If capital gains, do not deduct STT. Check STT conditions for 111A or 112A.
  7. 7If business income, STT paid is deductible.
  8. 8Apply holding period, exemption of ₹1,25,000 and the tax rate if asked.

Quickest way: Product, side, base

When to use it: For rate-recall MCQs and trap options about who pays or whether STT is deductible.

  1. Delivery: both sides 0.1%.
  2. Intraday, futures, options sale: seller only.
  3. Option premium is the base on sale. Settlement price is the base on exercise.
  4. Fund units: only sale or redemption, at 0.001%.
  5. Capital gains: STT never deducted. Business income: STT deductible.
  6. If a question says STT was not paid, expect the concessional rate to be denied.

Common mistakes in Securities Transaction Tax (STT) and Other Transaction Costs

  • Charging STT on both buyer and seller for intraday trades.

    Delivery trades charge both sides, so students carry that over.

    Fix: Only delivery is two-sided. Intraday, futures and options sale are seller-only.

  • Deducting STT from capital gains.

    STT feels like a cost of trading.

    Fix: For capital gains, STT is not part of cost or transfer expenses. It is deductible only against business income.

  • Applying the options STT rate to the contract's notional value.

    Futures use trade price, so students assume the same base.

    Fix: Options sale STT is on the premium. Only on exercise is it on the settlement price.

  • Believing STT on purchase is needed for equity mutual fund units to get 112A.

    Students mix the share rule with the fund-unit rule.

    Fix: For fund units, STT on transfer is enough. For listed shares, STT on acquisition and transfer is generally needed, with notified exceptions.

  • Using old STT rates from outdated notes.

    Finance Acts change the rates.

    Fix: Learn the table in your current workbook version and check the date of the rates.

Worked examples

Example 1

Riya buys listed shares for ₹5,00,000 on delivery and sells them 8 months later for ₹6,00,000. Compute STT paid and the taxable gain, ignoring brokerage and other charges.

Show the solution
  1. Delivery trade, so both purchase and sale attract 0.1% STT.
  2. STT on purchase = 0.1% × ₹5,00,000 = ₹500.
  3. STT on sale = 0.1% × ₹6,00,000 = ₹600.
  4. Total STT = ₹1,100.
  5. Holding is 8 months, so the gain is short term.
  6. Gain = ₹6,00,000 − ₹5,00,000 = ₹1,00,000. STT is not deducted.
  7. Under Section 111A the tax is 20% × ₹1,00,000 = ₹20,000, plus cess.

Answer: STT paid is ₹1,100. The STCG is ₹1,00,000 and tax is ₹20,000 plus cess.

Example 2

Arjun sells listed equity shares held for 3 years. STT was paid on purchase and sale. Sale value is ₹8,00,000 and cost is ₹5,00,000. The only LTCG this year is this one. Compute the tax under Section 112A, before cess.

Show the solution
  1. STT was paid on both acquisition and transfer, so 112A conditions are met.
  2. LTCG = ₹8,00,000 − ₹5,00,000 = ₹3,00,000. STT is not deducted.
  3. Gains up to ₹1,25,000 are exempt.
  4. Taxable LTCG = ₹3,00,000 − ₹1,25,000 = ₹1,75,000.
  5. Tax = 12.5% × ₹1,75,000 = ₹21,875.

Answer: Tax under Section 112A is ₹21,875 before cess.

Exam tips

  • Memorise the rate table as product, side and base. Many MCQs test only who pays.
  • Watch for words like 'seller', 'premium' and 'exercise'. They change the answer.
  • Whenever a question mentions STT and deduction, check the head of income first.
  • On 112A questions, check holding period, the ₹1,25,000 exemption and whether STT was paid.
  • If an option in the question gives an older rate, pick the one that matches your workbook version.

Practice questions from Taxation of Equity Products

Securities Transaction Tax (STT) and Other Transaction Costs: frequently asked questions

What are the STT rates on equity delivery and intraday trades?

On delivery trades in listed equity shares, the buyer and the seller each pay 0.1% of the value. On intraday trades, only the seller pays 0.025%. Rates are set by Finance Acts, so check your current workbook.

Is STT deductible from capital gains?

No. STT is not part of the cost of acquisition or the expense of transfer. It can be deducted only when the income is taxed as business income, such as F&O or intraday trading as business.

What are the STT conditions for the concessional LTCG rate?

For listed equity shares, STT must generally be paid on both acquisition and transfer, with notified exceptions. For equity-oriented fund units, STT on transfer is enough. The holding must be more than 12 months.

How is STT charged on futures and options?

On futures, the seller pays 0.02% of the trade price. On options, the seller pays 0.1% of the premium. If an option is exercised, the buyer pays 0.125% of the settlement price.