Security transaction tax is one of the techniques adopted by the government in order to curb black money or unaccounted money, which is a main concern for the developing countries. As per the Indian act, STT is charged on gains arising from the capital gains.
Capital gain as per the act means profits arising from the sales or purchases of any asset, which was done with the intention of making an investment. Capital gain is divided into two types:
These gains or profits are to be included in the computation of income tax. This income is charged with wealth tax and it is not a part of earned salary. Capital gain can arise from the purchase or sales of the following assets:
Any profit arising from the purchase or sale of these assets is termed as capital Gains.
Law enforces the broker or middleman to calculate and add the transactional price to the sales and purchases of assets. Once the STT is added the broker is allowed to add his brokerage, which would be the total price of the assets price. This has helped the government to control tax evasion and generate more revenue for the economic development of the country.
Security transaction tax is charged on assets even if it doesn’t earn profit for the investor. Businessmen who are involved in the purchase and sales of shares, equities, bonds, securities, government bonds, and others have to add the cost to STT to the price of these shares.
The tax is levied on the income the investor receives and not on the amount, which is agreed as sales or purchase price. In other words the tax is charged as and when the fund from capital gain is received by the tax payer.
The transaction tax is charged at 0.025 percent if the tax payer is closing the books of account every day. In case of derivatives like shares and bonds the seller is charged a tax amount of is 0.017 percent. It is mandatory for the tax payer to approach the broker and get a certificate for the total amount of STT paid by them throughout the financial year.