Context: Despite the volatility in the stock market, the Securities Transaction Tax (STT) collection has shot up by over 75% to Rs 44,538 crore as of January 12, 2025.
Relevance of the Topic:Prelims: Key facts about the Securities Transaction Tax.
About Securities Transaction Tax
- Background:
- Finance Act 2004 introduced Securities Transaction Tax (STT), as a clean and efficient way of collecting taxes from financial market transactions.
- Rationale: To prevent people evading capital gains tax by not declaring their profits on the sale of stocks.
- What is STT?
- STT is a direct tax levied on every purchase and sale of securities that are listed on the recognised stock exchanges in India.
- STT is an amount to be paid over and above the transaction value. Hence, it increases transaction value.
- Regulation:
- STT is governed by the Securities Transaction Tax Act (STT Act).
- STT Act has specifically listed down various taxable securities transactions i.e., transactions on which STT is leviable.
- Rate of STT: Decided by the Government and modified from time to time, if necessary.
- Taxable Securities:
- Shares, scrips, stocks, bonds and debentures
- Derivatives (Futures and Options)
- Units of mutual funds and other collective investment schemes.
- Government securities of equity nature
- Equity-oriented units of mutual funds
- Rights or interest in securities
- Securitised debt instruments
- Exclusion: Off-market transactions are out of the purview of STT.
Rise in STT Collection:
- Securities Transaction Taxcollection has increased by over 75% to Rs 44,538 crore as of January 12, 2025, as against Rs 25,415 crore raised in the same period in 2024.
- The rise in collections comes despite a hike in STT on futures & options (F&O) of securities that was levied to curb speculative market activity in the F&O segment.
- SEBI and RBI had raised concerns over the rise in volumes in the F&O segment, which can pose a risk to macroeconomic stability.
- Increased STT collections also adds to the revenue kitty of the government.