Securities Transaction Tax

STT is a tax on the transaction, not on the profit. It is charged whether you made money or lost it, and it is deducted by the exchange on which the trade took place, which then remits it to the government. You never write the cheque yourself.

Two things about it decide most exam questions. First, it is levied on sell transactions for both futures and options. Second, the value it is charged on is different for each kind of trade: a futures trade is valued at the actual traded price; an option trade is valued at the premium; and an option that is exercised is valued at the settlement price — a vastly larger number, charged to the purchaser.

That last line is where real money is lost by real traders, and it is examined.

Rates effective 1 April 2026 (Union Budget 2026-27):

Where a derivative contract is settled by physical delivery of shares, it is treated like a delivery-based equity transaction, and the delivery-based rate of 0.1%, payable by both the seller and the purchaser, applies.

STT on futures = Traded price × Lot size × 0.05%
STT on option sale = Premium × Lot size × 0.15%
STT on exercise = Settlement price × Lot size × 0.15%

1. A futures trade, with all its costs. The workbook's full trading-cost table. A trader takes a short position of 1 lot of index futures at 17,500, lot size 50:

Contract value = 1 × 50 × 17,500 = Rs 8,75,000

STT alone is 57% of the total cost of the trade. Note two things the workbook flags: the 0.03% brokerage is illustrative only, since most brokers now charge a flat rate per order; and stamp duty is absent because it is charged only on the buy side (0.002%, or Rs 200 per crore, for equity futures buyers; 0.003%, or Rs 300 per crore, for equity option buyers).

2. The exercise trap. A trader holds 1 lot of a 25,000-strike Nifty call, lot size 50. At expiry the settlement price is 25,180, so the option is in the money by 180 points and is worth about Rs 180 of premium.

His gross gain is 180 × 50 = Rs 9,000 either way. Squaring off costs him Rs 13.50 in STT. Letting the option go to exercise costs him Rs 1,888.50 — over 20% of the entire payoff — because the tax base jumps from the premium to the full settlement price. Nothing about his position changed; only the route out did.

Chapter 9, section 9.2 (Taxation of derivative transaction in securities), gives the rate table, the valuation rules and the collection chain. Chapter 6, section 6.5 (Trading costs), gives the same 0.05% rate inside the full cost table reproduced above, under statutory charges — alongside GST, stamp duty and SEBI turnover fees. Expect the rate table as a recall question, the cost table as a computation, and one conceptual question on the base: premium for an option sale, settlement price on exercise, traded price for a futures. Note also that STT paid is eligible as a deduction under the Income Tax Act, 1961, when F&O income is assessed as non-speculative business income.

• Check which edition your workbook is on before quoting a rate. This page teaches the Union Budget 2026-27 rates effective 1 April 2026, as the Series VIII workbook states them. Several other series that teach STT are still on the pre-April-2026 table — Series VII, for instance, gives 0.020% on the sale of a futures contract and 0.100% on option premium, footnoted as subject to change from that date. The paper marks its own workbook; do not carry a rate across from another series.
• The rate alone is not the answer; the base matters more. Option STT on a sale is 0.15% of the premium; on exercise it is 0.15% of the settlement price. Same rate, two orders of magnitude apart.
• On exercise, STT is payable by the purchaser, not the seller — the only row in the table where the buyer pays.
• STT is levied on sell transactions for both futures and options. There is no STT on the purchase of a futures contract or on the purchase of an option.
• STT is charged on turnover, not on profit. A loss-making trade pays exactly the same STT.
• Physical settlement switches you to the equity rate of 0.1%, payable by both sides.
• Stamp duty is the mirror image of STT — buy side only, at 0.002% for futures and 0.003% for options. Do not read "statutory charges" as one undifferentiated block.
• STT and GST are both central government taxes, but GST is charged at 18% on brokerage plus transaction charges, never on the contract value.
• On voluntary or final exercise, STT is levied on the settlement price only if the option contract is in the money.