Securities Transaction Tax (STT)
A mandatory direct tax on every equity and F&O trade on Indian exchanges — collected at source and embedded in your brokerage contract note.
Definition
Securities Transaction Tax (STT) is a direct tax levied by the Government of India on the purchase or sale of securities listed on a recognised stock exchange — primarily NSE and BSE. Introduced in the Finance Act 2004, it replaced the earlier system of long-term capital gains tax on equities and is collected by the exchange on behalf of the government, appearing as a line item on every contract note. Unlike brokerage, STT cannot be negotiated; the rate is set by the Finance Ministry and applies uniformly to all participants, from retail traders to institutional desks. For F&O traders, STT interacts critically with physical settlement and expiry mechanics.
Why it matters
STT is one of the most consequential — and often underestimated — costs in Indian options trading. For intraday option trades that are squared off before expiry, STT is charged only on the sell leg, applied to the premium received. The rate is currently 0.1% on the sell side for equity options (verify the latest Finance Act notification for current figures). This sounds small, but on high-turnover scalping strategies with dozens of lots per day, it accumulates rapidly.
The real sting arrives at expiry. If an equity option expires in-the-money and the buyer does not square off before market close, STT is computed on the settlement value — the intrinsic value at expiry multiplied by lot size — not on the premium paid. This can result in an STT charge several times the original premium, effectively turning a winning trade into a net loss. SEBI's move to physical settlement for stock options amplified this risk; even a modest in-the-money stock option can trigger a large STT outgo on its notional lot value.
For equity futures, STT applies to the sell side on the notional contract value (not just the margin). Index futures and index options carry their own rate schedule. Traders building multi-leg strategies — straddles, spreads, or ratio writes — must factor STT into their break-even calculations, particularly when any leg is likely to expire in-the-money.
Formula
For option trades squared off before expiry:
STT = Premium × Lot Size × Number of Lots × STT Rate (sell side only)
For options exercised / expired in-the-money (equity options):
STT = Settlement Price × Lot Size × Number of Lots × STT Rate on exercise
The exercise rate is materially higher than the intraday rate. Always verify current rates from the NSE circular or Finance Act gazette; rates have been revised multiple times since 2004.
Example
Suppose you buy 1 lot of a Nifty Bank stock option (lot size 100) with a premium of ₹15. You pay no STT on the buy leg for options. You square off at ₹40 — STT is charged on ₹40 × 100 at the applicable sell rate. Now suppose you forget to square off and the option expires at an intrinsic value of ₹35 with a stock price of ₹1,200. Instead of STT on ₹35 premium, STT is now levied on ₹1,200 × 100 (the notional settlement value), a figure orders of magnitude larger. Even a small in-the-money expiry can produce an STT bill that dwarfs the profit — which is why experienced traders set expiry-day alerts and either roll or close positions well before 3:30 PM IST on expiry day.
See live STT impact on your positions
Track open option positions and their expiry-day settlement risk in real time on TradePulse.