Skip to main content

What is security transaction tax and commodity transaction tax?

By
Security transaction tax (STT)

It is a tax payable on the value of securities which a trader trades with on any listed exchange. STT is payable by investors and traders to the central government, however, this is not chargeable in commodities and currencies. To stop tax avoidance on capital gains it was introduced in India in 2004. As people does not declare their profits, the government could tax only those profits which people explicitly declare. With STT now taxation on investing and trading have been simplified to a certain extent.

STT will be charged in all the transactions in stocks, futures, and options whether you buy or sell a share. Share price includes its price in it and there is no way to avoid it as this tax is automatically added to the transaction price.For buying and selling securities listed on the exchange a trader must have a demat account and trading account.


Following are the security transaction tax rate:

  • Buying or selling of stocks – STT is 0.125% of the value of the total transaction.
  • Squaring off position/ not taking delivery: STT is 0.025%
  • Under derivative contracts: STT is 0.017%(charged only to seller)


Commodity transaction tax(CTT)

CTT was introduced in the union budget of 2013-14 as there is no major difference between derivative trading in securities or commodities. The only difference is the underlying asset is different in both.This tax is applicable to traders and investors dealing with commodities other than agricultural commodities as they are exempted from CTT. On all the other commodities like gold, silver, crude oil, natural gas, lead, nickel, zinc this tax will be charged.Earlier to an introduction of it there was no such tax charged in a commodity market.Trade volumes on MCX and other commodity exchange declined after this tax become effective while trading in commodity market.

Prior to this CTT was introduced in 2008-09 as well. With this tax, the transaction cost of trading in non-agricultural commodities increased and imposed an additional burden on traders and investors as already they are required to pay other charges like brokerage, stamp duty and more. Services of discount brokers help in saving these extra costs to some extent as they charge less brokerage only on executed orders and no additional restrictions are imposed.


At the end of the year, you can ask your brokers for a certificate stating the amount of STT and CTT you have paid throughout the year. This will help you to get a tax credit by getting this amount deducted from short-term capital gain.
Labels:

Comments

Post a Comment

Popular posts from this blog

How to open a Demat account and what benefits are offered by dematerialization?

By
With the introduction of new technologies trading in the stock market has changed a lot. Earlier when BSE was formed in 1875 at that time traders and investors used to stand on floor and shout prices of stocks for buying and selling. The money was exchanged between buyer and seller and a physical copy in the form of certificate was issued to the buyer.The entire process was very time-consuming. In 1996 concept of dematerialization was introduced in share market. Physical copies of shares were replaced by electronic form and were credited and debited from the Demat account of a trader. Following are the benefits offered by dematerialization : 1)Common bank In Demat account along with shares, other financial instruments like bonds can be stored as well. Traders can use the same account to trade in stocks and bonds both. 2)Time and cost To deliver a physical copy of shares cost is involved and also it takes the time to do so. With dematerialization, this cost and time c...
Post a Comment
Read more

What is meant by stock market trend and its types ?

By
Market Trend Stock market is of highly volatile nature and we often notice ups and downs at stocks price charts on daily basis. To some extent market trend is responsible for these movements in stocks prices. Understanding market trend is very much important to perform quality technical analysis. In general term market trend is broad upward or downward movement in a stocks price over a period of time. As we know stock prices can be volatile and does not necessarily follows a straight line by zooming price chart a defined market trend can be identified. Discount brokers offers such necessary details about market trend, price charts and more on their trading platform itself. Three major types of market trends are discussed below : 1) Uptrend When market is following upward trend then at that time both tops and bottoms of a stock chart keeps on increasing. Everyday stock price touches a new high and falls lower than it did on the earlier day. Do not frame a misconception th...
Post a Comment
Read more

How would you differentiate between Traditional brokers and Discount brokers?

By
A brokerage firm is a financial institution that enables traders and investors of stock market to buy and sell financial securities. To execute any contract in stock market two parties are required buyer (long position holder) and seller (short position holder). Basically a broker act as an intermediary between buyer and seller and facilitates them to trade on various financial securities. In return brokerage firms receives compensation in the form of commission/fees once the transaction has been executed. We have two types of brokers : 1)Traditional Brokers 2)Discount Brokers Traditional brokers or full service brokers are the oldest brokers in stock market. They usually undertake more then simply acting as an intermediary to execute the trading process.There services also includes proper researching of stock market to offer necessary recommendations to stock market players as well.Often these firms also offers margins loans in addition to certain client to purchase investment on cre...
Post a Comment
Read more