What is Securities Transaction Tax on mutual funds?
Key facts
- STT on redemption of equity-oriented mutual fund units is 0.001%, deducted at source.
- There is no STT on debt mutual funds.
- Because STT is paid, equity fund gains qualify for the Section 111A and 112A rates.
- STT is not separately claimable as a deduction; it is already reflected in your transaction.
A tax you barely notice
Securities Transaction Tax, or STT, is a small levy on transactions in equity and equity-oriented funds. On redemption of equity-oriented fund units it is charged at 0.001% and deducted automatically. You will not see a separate bill for it, and at that size it is negligible next to costs like the expense ratio.
Debt funds carry no STT at all.
Why it is worth knowing
STT does one important thing beyond its own cost: it is a condition for the concessional equity capital gains rates. Because STT is paid on your equity fund transaction, your gains qualify for the 20% short-term rate under Section 111A and the 12.5% long-term rate under Section 112A. Without it, those rates would not apply.
Please verify: confirm the current STT rate on equity-oriented fund redemptions against the latest Finance Act before publishing a specific figure, as STT rates are revised from time to time.
You do not need to do anything about STT; it is handled for you. For the rates it unlocks, see long-term and short-term gains, or talk to us.
Frequently asked questions
Do I pay STT separately when I redeem an equity fund?
No. STT on equity-oriented fund redemptions, at 0.001%, is deducted automatically as part of the transaction. You do not pay or file it separately, and it is already reflected in the amount you receive.
Why does STT matter for my tax rate?
The concessional equity capital gains rates, 20% short-term under Section 111A and 12.5% long-term under Section 112A, apply because STT has been paid on the transaction. It is one of the conditions for those rates.
Is there STT on debt funds?
No. Securities Transaction Tax applies to equity-oriented funds, not to debt funds. Debt fund taxation works entirely through slab-rate capital gains under Section 50AA.
This is general information, not a recommendation for your situation. If it would help to talk it through, we are happy to. Talk to Nico Wealth.
The information on this website is general and educational. It is not financial, tax, or legal advice, and not a recommendation for your situation. We try to keep it accurate and up to date, but it may contain errors or become outdated. Please verify important details from official sources, and consider your own circumstances, before acting.
Sources
- Income-tax Act 1961, Sections 111A and 112A (STT-paid conditions)
- Finance Act provisions on Securities Transaction Tax
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