STT to stay as it helps track big-ticket spending, says FM Nirmala Sitharaman

Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman on August 8 said that Securities Transaction Tax (STT) will continue to be imposed given that it helps the government trace big-ticket spending.

She was responding to a question in the Rajya Sabha on whether STT should be removed given the presence of taxation on capital gains.

"A member of the House spoke of STT rates and reminded of a promise given long, long ago that if capital gains is there then STT will be there only for sometime. So if capital gains is there, STT may not be there. But we have kept STT because it helps us trace those with big ticket spending and also helps in widening tax base," Sitharaman said during her reply on the Finance Bill.

STT was introduced in the 2004 Budget by then-Finance Minister P. Chidambaram with an aim to combat evasion related to capital gains. At the same time, he had also made Long-term capital gains (LTCG) tax-exempt.

This had led to anticipations back then that STT would replace LTCG.

However, Finance Minister Arun Jaitley in 2018 re-introduced LTCG of 10 percent if the gains exceed Rs 1 lakh without allowing the benefit of indexation.

Since then, ahead of almost every Budget there have been expectations that STT may be reduced or removed completely given the reintroduction of LTCG.

Sitharaman added that STT helps bring those who spend bigger amounts into the tax net, which is why it continues to be imposed and is not primarily levied due to revenue considerations.

STT is levied on various financial instruments traded on exchanges, including stocks, futures, options, mutual funds, and exchange-traded funds (ETFs).

In the Budget for 2024-25, the Centre increased STT on Futures & Options (F&O) of securities to 0.02 percent and 0.1 percent, respectively.

Apart from that, the full Budget also hiked the LTCG to 12.5 percent from 10 percent in case of equities, while short-term capital gains tax (STCG) on some assets would be 20 percent.

The reduction on LTCG on real estate to 12.5 percent from 20 percent came without indexation benefit.

However, thanks to an amendment, homeowners can choose between paying a 20 percent LTCG tax with an indexation benefit or a 12.5 percent rate without indexation when it comes to LTCG for properties bought before July 23, 2024.