ET classroom: The rationale behind securities transaction tax

One of the greatest concerns of the stock markets today is whether investors will be required to hold shares for at least three years from one year to avail of exemption from long term capital gains tax.

Such a decision might well be taken by the government in Budget FY17 to be presented today. However, to provide relief to investors the government might rationalise rates of Securities transaction tax (STT).

What is STT?
Securities transaction tax is a levy on stock market trades that’s collected by revenue from brokers.

What are the rates of STT?
On sale of a futures in securities, it’s 0.01% or Rs 10 per lakh on the seller. On sale of an option in securities, it’s levied at 0.017% or Rs 17 on a lakh on the seller. On sale of an option in securities where the option is exercised it’s 0.125% on the purchaser, or Rs 125 on a lakh.

In case of an option in securities on what is STT calculated?
On the premium.

And where the option is exercised?
It is at the settlement price if the option contract is in the money.

What is the futures trade valued at for the purpose of STT?
At actual traded price.
How much did STT yield the government in FY15?
In the year ended March 31, 2015, the government collected Rs 6,280 crore through STT.