Under which of the following circumstances may the Securities Transaction Tax arise?

1. Profits are made on a certain security

2. Company pays dividend to the owners

3. A security is purchased or sold

Select the correct answer using the codes given below:

Solution

The Securities Transaction Tax is a tax levied at the time of purchase and sale of securitieslisted on stock exchanges. ● Statement 1 is Incorrect: When profit is gained on a certain security, the gains are taxed as per the Capital Gains Tax. The initiative behind introducing STT was to curb evading of capital gains tax on profits earned by transecting in securities. ● Statement 2 is Incorrect: When a company pays profits to the owners, the sum of money is charged through the Dividend Distribution Tax and not the securities transaction tax. ● Statement 3 is Correct: The Securities Transaction Tax is a tax levied at the time of purchase and sale of securities listed on stock exchanges. This tax was introduced in the 2004 Union Budget and came into effect from 1 October 2004. The rate of STT differs based on the type of security traded and whether the transaction is a purchase or a sale. The collection of STT works in a similar way as TCS or TDS. It has to be collected by a recognized stock exchange or by the prescribed person in the case of a Mutual Fund or the lead merchant banker in the case of an IPO.