STT stands for Securities Transaction Tax, which is a tax levied on securities transactions carried out on Indian stock exchanges. The STT tax was introduced in India in 2004 and is applicable to transactions involving equities, derivatives, and mutual funds.
STT on option Buying
In the case of options trading, the STT tax is charged on the option premium and is paid by the buyer of the option. The rate of STT tax for options trading is currently 0.05% of the option premium, which means that if the option premium is Rs. 10,000, the STT tax payable would be Rs. 5.
STT on option selling
As per amendments to the Finance Bill 2023, which was passed in the Lok Sabha on Wednesday 2, STT on the sale of options has been hiked to ₹2,100 on a turnover of ₹1 crore against an earlier applicable levy of ₹1,700 roughly 0.017%
New calculation for STT
0.021% of 1 crore can be calculated as:
(0.021/100) x 1,00,00,000 = (0.00021) x 1,00,00,000 = 2,100
Therefore, 0.021% of 1 crore is equal to Rs. 2,100.
How does it impact you if using 1 lakh capital
If the STT rate for options trading were to increase from 0.017% to 0.021%, it would result in a higher tax liability for traders. Let’s consider the impact of this rate hike on someone trading options with a capital of 1 lakh.
Assuming that the trader completes 10 trades per day for 22 trading days in a month, the total number of trades in a month would be 220. If each trade is for Rs. 10,000 (which is the maximum value for a single trade), the total trading value for the month would be:
Trading value = 220 x Rs. 10,000 Trading value = Rs. 22,00,000
With an STT rate of 0.017%, the total STT liability for the month would be:
STT = 0.017% x Rs. 22,00,000 STT = Rs. 3,740
With an STT rate of 0.021%, the total STT liability for the month would be:
STT = 0.021% x Rs. 22,00,000 STT = Rs. 4,620
Therefore, in this scenario, a rate hike from 0.017% to 0.021% would result in an additional tax liability of Rs. 880 per month for the trader.
If you are trading volume is 10 lakhs you will be paying 8800 per month and 88000 if you are trading securities worth 1 crore.
For Cash Market (EQ) Transactions: STT on Intraday Trades
STT is charged on the sell side of the transaction at 0.03125%. Let us understand this with an example:
A trader buys 100 shares of Tata Chemicals Ltd. for Rs 1,000 each at 9:30 AM on Monday and sells them off at Rs 1,005 at 3:15 PM. Here, STT will be Rs 31.41 calculated as (Rs 1,005 x 100 x 0.03125% = Rs. 31.41)
STT on Delivery Trades
STT is charged on both legs, i.e. Buy & Sell side of the delivery transaction. Let us understand this with an example:
Trader buys 100 shares of Tata Chemicals Ltd. at Rs 1,000 each on 27th October 2021 and sells the same at Rs 1,010 on 30th October 2021. STT will be Rs. 125 on the buy side calculated at 0.125% on (Rs 1,000 x 100 x 0.125% = Rs. 125) & Rs. 126.25 on the sell side calculated at (0.125% on Rs. 1,010 x 100 x 0.125% = Rs.126.25). So the total STT will be Rs 251.25.
An important benefit of the STT is that, if STT is paid on transactions previously, capital gains on securities transactions gets charged at a preferential rate.
Short Term Capital gains
In case of short term capital gains, a tax of 15% is applicable. In case of long term capital gains, the tax rate is 0%. This is long terms capital gains is exempt from tax for transactions where STT is previously paid. For Future & Option Market Transactions STT on Futures Transactions
STT will be charged on the sell side turnover of the transaction, regardless of whether the trade is Intraday or Positional. The current STT rate is 0.0125%.
Happy Trading !!!
