Introduction
Previously, there was a different way (and a different rate of tax as well) of computing tax on profit incurred on account of sale of shares, debentures, bonds, mutual funds units and other securities. Levying of tax was also subject to the period of holding. The honorable Finance Minister, Mr. P Chidambaram (in the Finance (No. 2) Bill presented by him in the Union Budget 2004-05) brought significant amendments in the policy for taxation on financial securities with effect from the assessment year 2005-06.

Securities Transaction Tax is a neat and efficient way of computing tax on profit incurred from the sale of securities, as it virtually nullifies the scope of tax avoidance. Securities Transaction Tax is applicable at different rates on the value of the taxable securities transaction. Taxable securities transaction, payable by both the buyer and the seller, refers to any transaction of securities entered into in a recognized Stock Exchange in India (on or before the date on which Chapter VII of the Finance (No. 2) Bill, 2004 was introduced).

Definition of Securities
As per section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA), Securities includes to:

Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; Derivative instruments (like forwards/futures/options on indices, stocks, commodities etc.) Units or any other instrument issued by any collective investment scheme to the investors in such schemes; Security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Government securities; Such other instruments as declared by the Central Government; and Rights or interest in securities.

Short-term Capital Gains	Long-term Capital Gains
Short-Term Capital Gains on all of the above mentioned securities (sold on or before the specified date at a recognized Stock Exchange in India) is taxable at the rate of 10% before levy of 10% surcharge for individuals and Hindu undivided family (having total taxable income of more than Rs. 8,50,000) and ay the rate of 2.50% for others, plus a 2% education cess for all other taxpayers (on the aggregate of income-tax and surcharge).	Long-Term Capital gains on all of the above mentioned securities is exempt from income tax under Section 10 (38) of the Income Tax Act, 1961

Note: Securities (not meeting the above mentioned stipulations) sold before/after the specified date would be taxable before the levy of surcharge and education cess.

Rate of Securities Transaction Tax on Capital Gains

	STT on Short-term Capital Gains	STT on Long-term Capital Gains
Rate of Taxation	Taxable at the regular rate of income tax, however credit would be available for STT from the income tax available i.e. STT would be deducted from the income-tax on business profits	10 per cent without indexation benefit Or 20 per cent with indexation benefit, whichever is lower.

Securities Transaction Tax on Sale and Purchase of Securities

Market Type	Previous Rate (before 1st June '06)	Current Rate (w.e.f. 1st June '06)
Futures & Options	0.0133%	0.017%
Capital Market (Delivery)	0.10%	0.125%
Capital Market (Intra-Day)	0.02%	0.025%