What is Securities Transaction Tax?

The STT full form is Securities Transaction Tax. STT is a type of financial transaction tax similar to TCS (Tax Collected at Source). STT is a direct tax that is imposed on every purchase and sale of securities. They are listed on the recognisable stock exchanges in India. 

STT is governed under the Securities Transaction Tax Act (STT Act). The STT Act has various types of taxable securities transactions that include the transactions on which the STT is imposed. 

Features of Securities Transaction Tax (STT)

STT is a simple, direct tax that is very easy to calculate and impose. Some of the specified characteristics of the security transaction tax are given below:

• The STT charge applies to all sales transactions for futures and options.
• The amount of STT that should be paid by a clearing member is the total of all the STT taxes that are owed by all the trading members under him.
• For the calculation of the securities transaction tax, every ‘futures’ trade is valued at the original traded price, whereas every ‘options’ trade is valued at the premium value.

Impact of STT on Investors and Traders

There are certain ways in which the Securities Transactions Tax impacts the traders and investors. They are given below:

• Shift in Trading Strategies: The investors can change their strategies for trading to take advantage of those securities where the STT rate is lower.
• Impact on Mutual Fund Investors: The impact of the securities transactions tax on the investors of mutual funds is low. It decreases the Net Asset Value (NAV) of the funds. This can lead to fewer profits for the investors. 
• Reduced Trading Volumes: For some of the traders, the additional cost of the STT can negatively affect them from investors to invest in the smaller volumes because of the higher cost, and hence it results in a decrease in liquidity. 
• Increased Cost of Transaction: The STT is the additional cost imposed on the selling and buying of securities. It increases the cost of all the traded securities. Keep in mind that if the volume of the transactions is big, then the STT cost becomes very large and if affect the total profits of the investors.