You pay a fee when trade/invest in stock market through registered exchanges. This fee keeps the whole stock market eco-system healthy, up and running. In case, you had always been curious, this article will answer your questions about different charges you pay in stock market.
For businesses, stock market is the place to gather funds for their expansion while on the other hand for traders/investors it has emerged as a well established and very well organized system to earn money. Further, it runs strictly by the rules and regulations set by SEBI, thus there is no possibility of frauds. You know that in case you have lost some money it is just because it’s part of the game.
Before proceeding further, it is important to well versed with financial intermediaries. In stock market, it’s good to know these entities and their functioning well.
For just a recap there are 4 (four) most important entities in stock market which are collectively called as financial intermediaries. These are
- Depository and depository participant
- Clearing Corporation
These financial intermediaries take well care of your trades. The time you place a trade to the time you close it, a fee is charged by the stock market system. This fee is used to keep the system running.
Let’s have a look at the different charges you pay in stock market
Securities Transaction Tax (STT) and Commodities Transaction Tax is the tax paid directly to Union Govt of India for transactions on the registered exchange. Let’s understand them one by one.
- Securities Transaction Tax (STT)
In India, STT was introduced by P. Chidambaram in 2004. He was Finance Minister of India at that time. This tax was imposed to stop tax avoidance on capital gains in stock market. At that time STT rate was set at 0.125% for delivery, 0.025 on intra-day and 0.017% on all futures and options transactions. After this tax was introduced there was a tremendous pressure from brokers as well as traders. After several protests by brokers and traders, in 2013, STT rates were revised. As a revision, it was reduced to 0.1% on turnover of both buy & sell sides of delivery based equity transaction. Intra-day rates were 0.025% on sell-side turnover. Futures rates were reduced to 0.01% on the sell side turnover only. For options, rates were reduced to 0.05% on the sell-side for premium amount. These reduced rates are currently in effect as of Dec2017.
A tabular presentation of these rates will be easier to understand.
|Sl No||Transaction Mode||STT rate %||Buy side/Sell side|
|1||Delivery||0.1||Both Buy and sell side|
Few more points regarding STT-
- Union Govt. of India has given STT deduction rights to exchange.
- STT is not applied to off-market transactions.
- As per Securities Contracts (Regulation) Act, 1956, STT is applicable to the following
- Units issued by any collective investment scheme
- Equity-based govt. securities
- Equity mutual funds
Just like STT is applied on securities transaction, CTT is applied on commodities transaction. Initially, in the 2008-09 budget, CTT concept was introduced at the rate of 0.17, equivalent to the rate of equity futures at that time. Later it was withdrawn by the govt. due to lots of protests by brokers and traders. In the 2013-14 budget, CTT was re-introduced at a rate of 0.01% only on turnover of sell side. This was equivalent to the rate of equity futures at that time. This time it was introduced only for non-agricultural commodity derivatives. Initially, only 23 agricultural commodities were exempted. In 2015, as a revision, some more agricultural commodities were exempted, where no trade was happening. This made the exempted list equal to 61.
To transact in stock market you need to have a trading account. This trading account is provided by a broker. Broker usually acts as a depository participant to aid you open demat account from a depository. There are lots of services that a broker provides. In return for all these services, broker charges a fee. This fee is called brokerage. For different brokers, this fee varies.
Stock and commodity exchanges are privately run organizations. Thus profit is one of their objectives. They earn this profit by charging a fee for providing platforms of their exchange. This fee is called transaction charge.
This transaction fee consists two parts viz.
Transaction Charge = Exchange Turnover Charges + Clearing Charges
These may vary from broker to broker due to clearing charges and other reasons. For example let’s have a look at these charges on zerodha.
|EQUITY DELIVERY||EQUITY INTRADAY||EQUITY FUTURES||EQUITY OPTIONS|
|TRANSACTION CHARGES|| NSE: 0.00325%
upto ₹750 crore monthly turnover Update Jul2018👇
| NSE: 0.00325%
upto ₹750 crore monthly turnover Update Jul2018 👇
| NSE: 0.0021%
BSE: ₹ 1.50 each on buy trade & sell trade
| NSE: 0.053%
BSE: ₹ 1.50 each on buy trade & sell trade
Goods and Services Tax (GST) is an indirect tax levied in India on the sale of goods and services. It came into effect from July 01 2017, through the implementation of one hundred and first amendment by the Government of India. Goods and services tax is divided into five tax slabs viz. 0%, 5%, 12%, 18%,28%. Stocks and commodities come under the slab of 18%.
This 18% is charged on the sum of brokerage and transaction charge.
GST on equity = 18% (brokerage + transaction charge)
GST on commodity = 18% (brokerage + transaction charge)
Securities and Exchange Board of India (SEBI) is the regulator of Indian stock and commodity market. It needs money to keep the system up, healthy and running.Thus a charge as SEBI charge is deducted from the transactions as well. SEBI charge is fixed at Rs 15/crore. This never varies.
When you buy a share you get a contract note as a proof of your payment. This proof requires stamp by the state you mentioned while opening the trading account. This stamp by the state also attracts a charge which varies differently for every state.
Below is the state stamp charge for every state.
|State||Eq Intraday||Eq delivery||Futures||Options||Currencies||Commodities|
|Andhra Pradesh||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50|
|Assam||0.018% – max ₹ 49.5||0.018% – max ₹ 49.5||0.018% – max ₹ 49.5||0.018% – max ₹ 49.5||0.018% – max ₹ 49.5||0.018% – max ₹ 49.5|
|Goa, Daman and Diu||0.003%||0.003%||0.003%||0.003%||0.003%||0.003%|
|Haryana||0.002% – max ₹ 200||0.01% – max ₹ 500||0.002% – max ₹ 200||0.002% – max ₹ 200||0.002% – max ₹ 200||0.001% – max ₹ 500|
|Himachal Pradesh||₹ 50/day||₹ 50/day||₹ 50/day||₹ 50/day||₹ 50/day||₹ 50/day|
|Jammu & Kashmir||0.003%||0.003%||0.003%||0.003%||0.003%||0.003%|
|Madhya Pradesh||0.002%||0.01%||0.002% – max ₹ 50/day||0.002% – max ₹ 50/day||0.002% – max ₹ 50/day||0.002% – max ₹ 50/day|
|Odisha||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50||0.005% – max ₹ 50|
|Rajasthan||0.0030%||0.0120%||0.0012%||0.0024%||0.0012%|| “Agri: 0.0006%
Non agri: 0.0012%”
|Tamil Nadu||0.006%||0.006%||0.006%||0.006%||0.006%|| “*30 paisa for every unit of Cotton, Kapas, Pods
*10 paisa for every unit of Kilo of Silver, 50 paisa for every unit of Kilo of Gold
*50 paisa for every unit of 25 Metric tones of Groundnut
*Lineseed, Castor Seed, Cotton Seed
*For any Yarn,non mineral oil, spices
*Hydrosulphide soda: 0.004%
*No Stamp Duty for Crude Oil and Base Metals”
|Telangana||0.01% – max ₹ 100/day||0.01% – max ₹ 100/day||0.01% – max ₹ 100/day||0.01% – max ₹ 100/day||0.01% – max ₹ 100/day||0.01% – max ₹ 100/day|
|Uttar Pradesh||0.002% – max ₹ 1000/day||0.002% – max ₹ 1000/day||0.002% – max ₹ 1000/day||0.002% – max ₹ 1000/day||0.002% – max ₹ 1000/day||0.002% – max ₹ 1000/day|
As mentioned in the financial intermediary, a depository is an entity which provides the facility to open electronic storage of shares called demat account. This account is opened through a depository participant (DP). A fee is charged to keep the shares in demat form. This fee is charged at the time you sell your dematerialized shares. Thus DP charge is not deducted from intra-day trades.
This charge is 13.5 + 18% GST, per scrip (irrespective of the amount) on the day the stocks are sold.
Thus for equity, Rs 15.93 (13.5 + 2.43 = 15.93) is DP charge, the day the stocks are sold.
Rs 5.5 + 18% GST per MF (irrespective of quantity) on the day of redemption.
Thus for mutual funds, Rs 6.49 (5.5 + 0.99 = 6.49) is deducted as DP on the day of redemption.
It is charged by depository and depository participant.
Brokers also provide the facility to place a trade on your behalf via phone, in case your internet/desktop/laptop/palmtop is inaccessible. This trade on phone attracts a fee per trade. This is an optional fee which is charged only when you use the service. This fee varies broker to broker.
Demat account attracts an annual maintenance charge. This charged once every year as a fee to maintain the system. It is Rs 300 per year.