Securities Transaction Tax (STT) is a direct tax levied on the purchase and sale of securities like stocks, equity mutual funds, derivatives, and exchange-traded funds (ETFs) on recognized stock exchanges in India. Unlike other forms of tax, STT is not refundable once it is paid, even if you incur a loss on the transaction.
Why STT Is Non-Refundable
STT is different from other taxes, such as Income Tax or Goods and Services Tax (GST), in several ways, primarily due to its structure and purpose:
Tax on Transaction, Not Income:
STT is a transaction-based tax, not an income-based tax. It is deducted at the time of the transaction (sale or purchase of securities), whether you make a profit or incur a loss.
As it is levied at the time of trading, it is automatically deducted by the stock exchange or broker, and there is no option to reclaim or reverse the tax once it is paid.
No Impact of Losses:
Unlike capital gains tax, which can be adjusted against other gains or carried forward in case of a loss, STT remains unchanged regardless of whether you gain or lose money on your securities transactions.
For example, if you buy stocks for ₹10,000 and sell them at ₹8,000, making a loss of ₹2,000, you cannot claim a refund on the STT paid, even though you incurred a loss on the transaction.
Nature of STT:
STT is considered an indirect tax collected by the government at the time of trading in securities. Once paid, it cannot be reversed because there is no direct link to the profit or loss you make from that trade.
Since it is a tax on the transaction value, not the profit, it is treated as a cost of engaging in securities trading.
STT and Capital Gains Tax
Although STT is non-refundable, it is important to note that it does affect your capital gains tax liability in the following ways:
Short-Term Capital Gains (STCG): If you sell equity shares or equity mutual funds within one year of purchase, the gains are taxed as STCG. The tax rate is 15% (plus cess). While STT has already been paid during the transaction, you still need to account for the capital gains tax on the profits.
Long-Term Capital Gains (LTCG): If the holding period exceeds one year, the gains are subject to LTCG tax. The LTCG tax on equity shares exceeding ₹1 lakh in a financial year is 10% without the benefit of indexation. Here too, STT is paid at the time of the transaction, but capital gains tax is separately computed.
While STT reduces the overall return on your investment, you cannot adjust it against capital gains tax or claim a refund.
What Can You Do If You Think STT Has Been Paid Incorrectly?
If you believe that STT has been deducted incorrectly, you should:
Check with Your Broker: Sometimes, mistakes may happen during the execution of the transaction. For instance, STT may have been deducted on a non-eligible transaction. If so, contact your broker or the stock exchange to resolve the issue.
Consult the Income Tax Department: If you have doubts about how STT has been applied to your transactions, you may seek guidance from the Income Tax Department. However, as mentioned earlier, STT is non-refundable, but you can seek clarification or file an appeal if there is a genuine mistake.
Can You Claim STT as a Deduction or Setoff?
Unfortunately, you cannot claim STT as a deduction under the Income Tax Act. It is a transaction tax, and therefore, it is not eligible for any relief under Section 80 or other relevant sections.
However, the capital gains tax arising from the sale of securities can be adjusted with other capital gains or carried forward (if applicable), but STT does not have the same treatment.
Conclusion
In summary, Securities Transaction Tax (STT) is non-refundable, and once it is paid, there is no mechanism to claim a refund, even in cases of losses or errors in the transaction. Since STT is levied on the transaction value (not on the gain or loss), it is considered a cost of participating in the securities market. It is essential for investors to factor in STT when calculating their returns and capital gains tax liabilities. Although you cannot get a refund on STT, it is important to correctly report all your transactions and capital gains when filing your Income Tax Return (ITR). For accurate reporting and tax planning, consulting a tax professional can be beneficial, especially when dealing with complex scenarios involving capital gains, STT, and other taxes.
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