Securities Transaction Tax (STT): Rates, When It Applies, and What It Costs You
Securities Transaction Tax is deducted on your contract note before you ever see a profit, and most people discover it only when a day of small gains somehow ends flat. It is not a tax on income. It is a tax on the transaction itself — charged whether you made money or lost it.
This chapter covers the rate on each segment, which side of the trade pays, how it interacts with your income tax, and the one place it quietly changes the economics of a strategy.
What STT actually is
STT was introduced by the Securities Transaction Tax Act, 2004. The logic at the time was a trade-off: the government would tax transactions at source, collected automatically by the exchange, and in exchange long-term capital gains on listed equity would be exempt.
That bargain is gone — long-term gains on listed shares have been taxable again since 2018 — but STT stayed. So Indian equity investors now pay both.
Two features make it different from every other charge on your contract note:
- It applies to the transaction, not the outcome. A trade that loses money pays the same STT as one that doubles.
- It is collected by the exchange, not billed by your broker. Your broker shows it as a pass-through line; the money goes to the government through the exchange.
The rates, by segment
The rate depends on what you traded and whether you took delivery. These are the rates applicable as of the financial year 2026-27; the Finance Act revises them from time to time, so check the current year before relying on a calculation.
| Segment | Charged on | Rate | Paid by |
|---|---|---|---|
| Equity delivery | Buy and sell both | 0.1% each side | Buyer and seller |
| Equity intraday | Sell side only | 0.025% | Seller |
| Equity futures | Sell side only | 0.02% | Seller |
| Equity options (premium) | Sell side only | 0.1% of premium | Seller |
| Equity options (exercised) | Settlement value | 0.125% | Buyer |
| Equity-oriented mutual funds | Redemption | 0.001% | Seller |
Two of those rows do far more damage than their size suggests, and they are the two that catch people out.
The exercised-option trap
Look again at the last two option rows. Selling an option costs 0.1% of the premium. Letting an in-the-money option get exercised costs 0.125% of the settlement value — the full contract value, not the premium.
On a NIFTY option that cost ₹200 in premium against a contract value of several lakh rupees, those two bases are not remotely comparable. An option that expires slightly in the money, left to be exercised rather than squared off, can hand back a meaningful part of the gain in STT alone.
This is why experienced option buyers square off before expiry rather than letting a position go to exercise, even when the price looks identical. The price is identical. The tax base is not.
Intraday versus delivery
Equity delivery pays 0.1% on both legs. Intraday pays 0.025% on the sell leg only.
Per trade, intraday is roughly eight times cheaper. That difference is a large part of why intraday volumes dwarf delivery volumes on Indian exchanges, and it is worth knowing when you read a figure like delivery percentage — the tax code itself tilts the market towards trades that never settle.
It also means the common framing of “delivery is cheaper because there’s no overnight cost” has it backwards on this particular line item.
How STT interacts with your income tax
This is where it stops being a rounding error.
If you are taxed under capital gains — which is how most investors are treated — STT is not deductible. You cannot subtract it from your sale consideration, and you cannot claim it as an expense. It is simply gone. Brokerage is deductible; STT is not.
If your trading is treated as business income — which is common for F&O and for high-frequency equity traders — STT is allowable as a business expense under Section 36.
So the same charge is deductible or not depending on how your activity is classified, which is one of several reasons the business-income question matters more than most traders assume. Our guide to tax on F&O trading covers that classification in detail, and the broader picture is in tax on stock market gains.
What STT is not charged on
Worth knowing, because the absences are often assumed:
- Off-market transfers. A gift of shares, or a transfer between your own demat accounts, attracts no STT because no exchange transaction takes place.
- Transfers to the IEPF. Shares moved to the Investor Education and Protection Fund are not a market transaction.
- Unlisted shares. STT applies to transactions on a recognised stock exchange. A private sale of unlisted equity does not attract it — though it has its own capital gains treatment.
- Commodity and currency derivatives. These carry CTT (Commodities Transaction Tax) and their own charges instead.
Working an example
Suppose you buy 100 shares at ₹500 and sell them at ₹520, taking delivery.
- Buy value ₹50,000 → STT 0.1% = ₹50
- Sell value ₹52,000 → STT 0.1% = ₹52
- Total STT = ₹102
Your gross gain is ₹2,000. STT takes ₹102 of it, around 5%, before brokerage, exchange charges, GST, stamp duty and your capital gains tax. And because you are taxed on capital gains, that ₹102 cannot be deducted anywhere.
Now run the same trade at a ₹200 gain instead of ₹2,000. STT is unchanged at ₹102, and it has taken half the profit.
That is the real shape of STT: it is invisible on a big win and decisive on a small one.
The honest summary
STT is a fixed friction on turnover. It does not scale with your success, it cannot be timed, and for most investors it cannot be claimed back. Its practical consequence is that strategies relying on many small gains carry a tax burden that strategies relying on few large ones do not — regardless of which is the better idea.
The two things worth acting on are both mechanical: know that exercised options are taxed on settlement value rather than premium, and know whether your own activity is capital gains or business income, because that single classification decides whether STT is an expense or a loss.
Related reading
- Tax on F&O trading — the business-income classification and what follows from it.
- Tax on stock market gains in India — capital gains rates and holding periods.
- Delivery percentage — why so little Indian volume ever settles.
- Stock market terminology — the rest of the contract note, line by line.