How is the Securities Transaction Tax (STT) calculated?
Securities Transaction Tax is a direct tax charged on purchase and sale of securities that are listed on the recognized stock exchanges in India. STT is always calculated on the Average Price. The exchange does not follow the FIFO (First In First Out) or LIFO (Last In First Out) methods to compute the STT.
Before we calculate the STT, we will have to determine the average price:
Average Price = (Buy Qty*Buy Price) + (Sell Qty*Sell Price) / (Buy Qty+Sell Qty)
For example, you bought the 500 shares at Rs. 100 and sold the 500 shares at Rs. 105, and you then bought 200 shares again at Rs. 110.
In this case, Average Price = [First Buy (500*100) + Second Buy (200*110) + Sell (500*105)] / [First Buy (500) + Second Buy (200) + Sell (500)] = (50000 + 22000 + 52500)/1200 = 103.75.
Now, STT for the intraday trades will be charged @ 0.025% on only the sell side i.e., 500*103.75*0.025% = 12.969. STT for the delivery transaction will be charged @ 0.1% on both the buy and sell = 200*103.75*0.1% = 20.75.