Market Basics · Chapter 10 / 36
STT (Securities Transaction Tax) on mutual funds
0.001% on equity-fund redemptions. Tiny in absolute terms; useful to know it exists.
Securities Transaction Tax (STT) is a small statutory levy on equity-related transactions, introduced in the Finance Act 2004. For mutual funds, it applies only to equity-oriented schemes and only on the redemption side.
The rate and the scope
- STT rate on equity-fund redemption: 0.001%.
- What it applies to: any redemption from an equity-oriented mutual fund — including SWP withdrawals, switch-outs from equity to anywhere, and direct sell.
- Where it doesn't apply: debt funds, gold funds, international funds (which are typically non-equity for STT classification), purchase-side transactions.
An equity-oriented mutual fund here means one with at least 65% in equity per SEBI categorisation.
How it's deducted
STT is deducted from the gross redemption proceeds before they're credited to your account. On a ₹1,00,000 redemption:
- Gross redemption: ₹1,00,000.
- STT: ₹1.
- Net credit: ₹99,999.
The amount is small enough that most statements absorb it without breaking it out; some show a separate STT line.
STT vs Stamp Duty
Two often-confused levies:
| Levy | STT | Stamp Duty |
|---|---|---|
| When charged | On redemption | On purchase |
| Applies to | Equity funds only | All mutual funds (since July 2020) |
| Rate | 0.001% | 0.005% |
| Effective from | October 2004 | July 2020 |
Tax implications
STT paid is not deductible from capital gains — it's a small statutory cost over and above the tax you'll pay on the gain. The economic impact is tiny (0.001% of redemption) but the same regulatory category as the equity-LTCG-12.5% rate that does apply to the gain.
Why it matters at all
For most investors STT is invisible — too small to notice. It does become relevant in two scenarios:
- High-frequency switching: a switch-out of equity → equity within the same AMC takes STT on each leg. Doing this 50 times in a year adds up to ~0.05% of average AUM, eaten on top of every other cost.
- Year-end reconciliation: tiny "STT" deductions on monthly statements explain the rounding gap between "redemption amount" and "credit received".
Sources
- Finance Act, 2004 — Chapter VII (Securities Transaction Tax) · accessed Jun 2026
- AMFI — Statutory Levies on Mutual Funds · accessed Jun 2026