Securities transaction tax and the exclusion of securities from GST

Law of Taxation · Unit IV · Topic 18 of 20 · 6 min read

Why sale and purchase of securities bears no GST, which related services do, and securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004: taxable transactions, current rates including the 2026 increase on futures and options, collection, and its link with income-tax.

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On this page

1. Securities and GST
2. Securities transaction tax: the law
3. Rates: section 98
4. Value, collection and enforcement
5. STT and income-tax
6. Problem
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. Two separate rules, often asked together. First, a transaction in securities is outside GST altogether, because securities are neither goods nor services under the CGST Act. Second, the Centre taxes such transactions through a different levy, securities transaction tax (STT), a direct-tax-style levy collected by the stock exchange on the value of the trade. Answer “GST exemption on sale and purchase of securities” with the first rule, and “STT” with the second.

1. Securities and GST

The CGST Act, 2017 defines “goods” as every kind of movable property other than money and securities (section 2(52)) and “services” as anything other than goods, money and securities (section 2(102)). “Securities” has the meaning in section 2(h) of the Securities Contracts (Regulation) Act, 1956 (section 2(101)): shares, scrips, stocks, bonds, debentures, derivatives, units of mutual funds and collective investment schemes, government securities and similar instruments.

Since GST is a tax on the supply of goods or services, a sale or purchase of securities is not a supply and attracts no GST. This is an exclusion from the base, not an exemption by notification under section 11; no conditions attach and no credit reversal is needed for the security itself (although, for credit apportionment, the value of securities sold is treated in the prescribed manner under the CGST Rules).

What is taxable. Services connected with securities are services and bear GST, generally at 18%:

brokerage and commission charged by stock brokers;
transaction charges levied by stock exchanges and clearing corporations;
depository participant charges;
portfolio management, investment advisory and merchant banking fees;
fees charged by SEBI for regulatory services to intermediaries.

So an investor who buys shares pays no GST on the price of the shares, but pays GST on the brokerage and exchange charges, and pays STT on the value of the trade.

2. Securities transaction tax: the law

STT was introduced by Chapter VII (sections 96 to 115) of the Finance (No. 2) Act, 2004, from 1 October 2004, when tax on long-term capital gains from listed shares was removed. It is a levy on the transaction, collected at source, and easy to administer.

Taxable securities transaction (section 97(13)) means:

purchase or sale of an equity share, a derivative, a unit of an equity-oriented fund or a unit of a business trust, entered into in a recognised stock exchange;
sale of unlisted equity shares under an offer for sale to the public in an initial public offer, where the shares are later listed;
sale of unlisted units of a business trust under an offer for sale in an initial offer;
sale of a unit of an equity-oriented fund to the Mutual Fund (redemption);
sale, surrender or redemption of units of an equity-oriented fund to an insurer under a unit-linked policy issued on or after 1 February 2021, on maturity or partial withdrawal.

Transactions outside STT: off-market transfers of shares, transactions in debt securities and government securities, and transactions in units of debt funds. These are not “taxable securities transactions”.

3. Rates: section 98

The Table in section 98, as shown on the Income Tax Department’s official site (last updated October 2026), is:

Delivery-based purchase of equity shares or business trust units on a stock exchange: 0.1%, payable by the purchaser.
Delivery-based sale of equity shares or business trust units: 0.1%, by the seller.
Delivery-based sale of units of an equity-oriented fund on an exchange: 0.001%, by the seller.
Non-delivery (intraday) sale of equity shares or units: 0.025%, by the seller.
Sale of an option in securities: 0.15% of the option premium, by the seller; sale of an option that is exercised: 0.15%, by the purchaser.
Sale of futures: 0.05%, by the seller.
Sale of equity fund units to the Mutual Fund, and redemption under a ULIP: 0.001%, by the seller.
Sale of unlisted shares or business trust units under an offer for sale: 0.2%, by the seller.

Current change. The rates on futures (0.02% earlier) and options (0.1% of premium earlier) were raised to 0.05% and 0.15% by the Finance Act, 2026 with effect from 1 April 2026, to discourage excessive speculative trading in derivatives. Quote the new figures.

4. Value, collection and enforcement

Value (section 99): for options, the option premium (or the settlement price where exercised); for futures, the price at which they are traded; for shares and units, the price at which they are bought or sold.
Collection (section 100): every recognised stock exchange, and the prescribed person in the case of a Mutual Fund or insurer, collects STT at the time of the transaction and pays it to the Central Government by the seventh of the following month. The lead merchant banker collects it on offers for sale.
Return and assessment: the collecting entity files a return and is assessed by the Assessing Officer; interest is payable on delay; penalty is imposed for failure to collect or pay (section 105) and for failure to furnish the return.

5. STT and income-tax

STT is linked to concessions in the Income-tax Act, 2025:

short-term capital gains on STT-paid equity shares and equity fund units are taxed at a flat 20% (section 196 [section 111A]);
long-term gains on such assets are taxed at 12.5% only above ₹1,25,000 a year (section 198 [section 112A]);
STT paid is not deductible in computing capital gains (section 72(3)(b) [section 48]), but it is deductible where the transactions are part of a business (section 32(k) [section 36(1)(xv)]).

6. Problem

Z, an investor, sells 500 listed shares for ₹5,00,000 on a stock exchange (delivery based) and pays brokerage of ₹1,000. What indirect levies arise?

Law. Securities are excluded from goods and services under sections 2(52) and 2(102) of the CGST Act; brokerage is a service. STT on a delivery-based sale of equity shares is 0.1% of value, payable by the seller (section 98).

Application. No GST on the sale of the shares. GST at 18% on brokerage = ₹180 (plus GST on exchange charges). STT = 0.1% of ₹5,00,000 = ₹500, collected by the exchange through the broker. Any capital gain is taxed under the Income-tax Act, 2025 at the concessional STT-linked rates, and the ₹500 is not deductible in computing it.

Conclusion. STT ₹500 and GST ₹180 on brokerage; no GST on the securities themselves.

How this is examined

February 2025 Q. 4(a): define securities transaction tax and explain the exemptions on sale and purchase of securities. January 2026 (80-mark) Q. 4(b): short note on STT. The syllabus heading is “GST exemption on the sale and purchase of securities, Securities Transaction Tax (STT)”. Give both halves of this note in that order and state the current rates.

Now try the real questions: Law of Taxation past question papers.