About Securities Transaction Tax (STT):
- It is a direct tax levied on the purchase and sale of securities listed on recognised stock exchanges in India.
- It is levied and collected by the Central Government.
- It is applied irrespective of the profit or loss made in the transaction. It is levied directly on the value of the transaction.
- STT operates similarly to Tax Deducted at Source (TDS) in that it is deducted at the time of the transaction itself.
- The tax is paid directly to the government through the stock exchanges or other intermediaries involved in the transaction.
- Introduced through the Finance Act of 2004, STT was designed to simplify taxation on securities trading and curb tax evasion in the capital market.
- STT is governed by the Securities Transaction Tax Act (STT Act), and STT Act has specifically listed various taxable securities transactions, i.e., transactions on which STT is leviable.
- Taxable securities include equities, derivatives, or equity-oriented mutual funds investment units (excluding commodities and currency).
- 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 not applicable to off-market transactions or to commodity or currency transactions.
- The rate of taxation is different for different types of securities.
- The government has the authority to revise STT rates periodically.
What is Futures and Options Trading?
- Futures and options are the major types of stock derivatives trading in a share market.
- Derivatives are financial contracts whose value is linked to the value of an underlying asset such as shares, stock market indices, commodities, ETFs, and more..
- They are complex financial instruments that are used for various purposes, including speculation, hedging and getting access to additional assets or markets.
- Futures and Options are contracts signed by two parties for trading a stock asset at a predetermined price at a later date.
- Futures and Options trading are different in terms of obligations imposed on individuals.
- Futures contracts obligate the buyer to purchase an underlying asset, while the seller must deliver it at a predetermined price and date.
- In options contracts, the buyer has the right, but not the obligation, to buy or sell the underlying asset at a predetermined price and date, while the seller must honour the contract if the buyer chooses to exercise their option.
