As the stock market is witnessing huge volume, collection from Securities Transaction Tax (STT) surged 87 per cent within the first 193 days of the current fiscal as compared to corresponding period of last fiscal.

With this, it has achieved around 83 per cent of the budget estimates (BE) for FY25.

Currently, the expectation is that full-year collection will be much higher than BE.

During FY25, , the government increased the STT collection target to ₹32,000 crore from ₹27,000 crore. For the current fiscal, the estimate is ₹37,000 crore.

The data collected between April 1 and October 10, released by the Income Tax Department, revealed that collections through Securities Transaction Tax (STT) reached ₹30,630 crore, compared to ₹16,373 crore during the same period last fiscal year.

With this, over three-fourths of the Budget Estimate (BE) has been achieved in just a little over six months.

One reason for the higher collection is not just the continuous bull run but also the heavy volume of trading in the stock market.

At the same time, stock-based derivative trading is also on the rise, which also contributed to the collection. Now, rates on stock-based derivatives (future and option) have been increased for the current fiscal.

“Security Transactions Tax on futures and options of securities is proposed to be increased to 0.02 per cent and 0.1 per cent respectively,” Finance Minister Nirmala Sitharaman announced, during her budget speech on July 24.

This is further expected to boost the collection.

The STT was implemented in 2004 by then Finance Minister P Chidambaram during the first term of Manmohan Singh’s regime.

This tax was intended to combat tax evasion on capital gains. While introducing STT, he said, “Our founding fathers had wisely included entry 90 in the Union List in the Seventh Schedule of the Constitution of India. Taking a cue from that entry, I propose to abolish the tax on long-term capital gains from securities transactions altogether. Instead, I propose to levy a small tax on transactions in securities on stock exchanges.”

The initial STT rate was set at 0.15 per cent of the security’s value. For instance, a transaction involving securities worth ₹1,00,000 would attract a small tax of ₹150. It was also specified that the tax would be levied on the buyer. Additionally, the rate on short-term capital gains was announced to be reduced to a flat 10 per cent.

“My calculation shows that the new tax regime will be a win-win situation for all concerned.,” he had said.

Securities Transaction Tax (STT) is levied on the value of securities, excluding commodities and cash, as well as mutual funds. Following widespread protests from brokers and members of the trading community, the government was compelled to reduce the STT rate in 2013.

STT is a direct tax, meaning it is levied directly on the transaction value of securities. As a result, it adds to the overall cost that buyers and sellers must bear, making each transaction more expensive.

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