The Securities Transaction Tax (STT) is a direct tax imposed on every purchase and sale of securities on the Indian stock exchanges. It acts as a nominal fee that investors pay when they engage in stock trading.
STT was introduced in 2004 with the intention of curbing tax evasion related to capital gains and minimizing speculative trading. Prior to its implementation, some investors would underreport their profits from stock trading to avoid tax liabilities. By collecting tax at the source, STT makes avoidance more challenging.
In the current fiscal year (2024-25), STT collections have surged significantly, showing an increase of 87% in the first 193 days. This is attributed to several factors:
STT rates vary based on the type of security and transaction. It can be levied on either the buyer, seller, or both, depending on the nature of the trade.
The government initially estimated STT collections to reach ₹37,000 crore for 2024-25. However, with strong performance thus far, it is anticipated that the actual revenue will surpass this initial estimate.
The boost in STT revenue has several implications:
The Securities Transaction Tax (STT) has emerged as a vital revenue source for the Indian government. With collections soaring by 87% in the early part of the fiscal year, STT is not only exceeding expectations but also playing a crucial role in strengthening the government's financial position. This growth is fueled by factors such as strong market performance, increased trading in derivatives, and the government's strategic adjustments in tax rates.
Q1. What is the purpose of Securities Transaction Tax (STT)?
Answer: STT aims to curb tax evasion in capital gains and reduce speculative trading by imposing a tax at the source on stock transactions.
Q2. How is the STT rate determined?
Answer: The STT rate varies based on the type of security and transaction, impacting either the buyer, seller, or both.
Q3. Why has STT collection increased significantly in 2024?
Answer: The rise in STT collection is driven by strong market performance, increased trading volumes, and higher tax rates on derivatives.
Q4. What are the expected STT collections for the current fiscal year?
Answer: The government initially estimated STT collections at ₹37,000 crore for 2024-25, but actual figures are likely to exceed this estimate based on current trends.
Q5. What does an increase in STT revenue indicate?
Answer: An increase in STT revenue reflects growing activity in the stock market and suggests a positive outlook for the economy.
Question 1: What is the primary purpose of the Securities Transaction Tax (STT)?
A) To increase stock prices
B) To curb tax evasion and speculation
C) To reduce government spending
D) To eliminate capital gains tax
Correct Answer: B
Question 2: In which year was STT introduced in India?
A) 2000
B) 2004
C) 2010
D) 2015
Correct Answer: B
Question 3: What has caused the recent surge in STT collections?
A) Decreased trading activity
B) Increased derivatives trading and market performance
C) Government cuts in tax rates
D) Higher unemployment rates
Correct Answer: B
Question 4: Which of the following affects STT rates?
A) Type of security and transaction
B) Investor's income level
C) Duration of stock holding
D) Amount of dividends received
Correct Answer: A
Question 5: What is the significance of increased STT revenue for the government?
A) It indicates lower market participation
B) It boosts funding for public services
C) It reduces tax compliance efforts
D) It eliminates the need for other taxes
Correct Answer: B
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