SC to Examine Validity of Securities Transaction Tax on Trading

Supreme Court to Examine Validity of Securities Transaction Tax on Stock Trading

Petition claims STT amounts to double taxation and violates fundamental rights

Court seeks Centre’s response; ruling could reshape India’s stock market taxation

By Our Legal Correspondent

New Delhi: October 07, 2025:

The Supreme Court of India has agreed to examine a petition challenging the constitutional validity of the Securities Transaction Tax (STT), a levy imposed on the purchase and sale of securities through recognized stock exchanges.

A bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan issued notice to the Union Finance Ministry, seeking its response on whether STT is consistent with constitutional principles of equality, freedom of trade, and fair taxation.

The petition, filed by Aseem Juneja, a stock market trader, argues that STT amounts to double taxation and is punitive in nature, as it applies even when traders incur losses.

What is Securities Transaction Tax (STT)?

Introduced in 2004 under the Finance Act, STT is a direct tax levied on every purchase and sale of securities listed on Indian stock exchanges.
It is currently charged at 0.1% on both buy and sell transactions in the cash segment of equities.
STT is collected by stock exchanges and deposited with the government.

The tax was originally introduced to curb tax evasion in the stock market and to simplify the process of collecting revenue from capital market transactions.

The Petitioner’s Arguments

The petitioner, represented by advocate Siddhartha K. Garg, raised several key objections:

Double Taxation: Traders already pay Short-Term Capital Gains (STCG) tax on profits from trades held for less than a year and Long-Term Capital Gains (LTCG) tax on trades held for more than a year. STT, levied in addition to these, amounts to taxing the same transaction twice.
Punitive Nature: Unlike other taxes in India, which are levied on profits or income, STT is charged on the act of trading itself, regardless of whether the trader makes a profit or loss.
Global Comparison: Major financial markets such as the US, UK, Germany, Japan, and Singapore do not impose a similar tax on securities transactions.
Violation of Rights: The petition claims STT violates:
- Article 14 (Right to Equality) – by treating traders unfairly compared to other professionals.
- Article 19(1)(g) (Right to Practice a Profession/Trade) – by discouraging participation in stock trading.
- Article 21 (Right to Life with Dignity) – by imposing a financial burden even in loss-making trades.

The plea describes STT as “the only tax in India imposed on the sheer act of carrying out a profession, irrespective of profit or loss, making it punitive and deterrent in nature.”

Supreme Court’s Intervention

The Supreme Court has not yet ruled on the validity of STT but has taken the first major step by issuing notice to the Centre.

The bench emphasized that the matter raises serious constitutional questions.
The Finance Ministry has been asked to file a detailed response.
The case marks the first judicial scrutiny of STT since its introduction two decades ago.

The outcome could have far-reaching implications for India’s stock market taxation framework.

Government’s Likely Stand

The government is expected to defend STT on several grounds:

Revenue Importance: STT generates significant revenue for the exchequer, estimated at ₹25,000–30,000 crore annually.
Curbing Tax Evasion: STT was introduced to prevent under-reporting of capital gains and to ensure transparency in stock market transactions.
Administrative Simplicity: Unlike capital gains tax, which requires detailed calculations, STT is easy to collect at the point of transaction.

However, critics argue that while STT may simplify revenue collection, it unfairly burdens traders and discourages market participation.

Industry and Market Reactions

The case has sparked intense debate among traders, investors, and financial experts:

Traders’ Associations: Many have welcomed the Supreme Court’s decision, saying STT has long been a “thorn in the side” of retail investors.
Market Analysts: Some warn that removing STT could reduce government revenue but agree that reforms are needed to align India’s taxation with global practices.
Policy Experts: They suggest that if STT is retained, it should be adjustable against capital gains tax, like how Tax Deducted at Source (TDS) is adjusted for salaried taxpayers.

Broader Implications

The case raises important questions about taxation philosophy in India:

Should taxes be levied on profits or on the act of trading itself?
Does STT discourage retail participation in stock markets, especially when combined with capital gains tax?
How should India balance the need for revenue collection with the goal of deepening capital markets?

If the Supreme Court strikes down or modifies STT, it could:

Boost retail participation in stock markets.
Align India’s tax regime with international standards.
Force the government to find alternative revenue sources.

Timeline of STT

Year	Event
2004	STT introduced under Finance Act by then Finance Minister P. Chidambaram
2008	STT rates reduced to encourage trading
2013	STT rationalized further for derivatives and equity delivery
2023	STT on futures and options increased to curb speculative trading
2025	Supreme Court agrees to examine constitutional validity of STT

Expert Opinions

Tax Experts: Argue that STT violates the principle of “no taxation without income”.
Economists: Say STT has helped reduce black money circulation in stock markets but agree it needs reform.
Legal Scholars: Point out that the case could set a constitutional precedent on how far the state can go in taxing economic activity.

Conclusion

The Supreme Court’s decision to examine the validity of STT has opened a crucial debate on the future of stock market taxation in India.

For traders, the case represents a chance to challenge what they see as an unfair and punitive levy. For the government, it is a test of balancing revenue needs with constitutional fairness.

As the case progresses, its outcome could reshape not just the taxation of securities but also the broader philosophy of taxation in India’s financial markets.