The treatment of STT would depend whether the transaction made in shares or mutual fund are treated as business income or capital gain.

STT is treated as business expenditure from financial year 2008-09

Earlier the STT paid on the transactions of shares or mutual funds, when treated as “Business transactions” and not “Capital Gains” was treated as normal income tax paid, and credit was given accordingly as per section 88E, however, by an amendment made, with effect from Financial Year 2008-09, the same is now allowed as business expense. The provision of deduction of STT is provided in section 36(1)(xv) of the Income Tax Act which is as under

(xv) an amount equal to the securities transaction tax paid by the assessee in respect of the taxable securities transactions entered into in the course of his business during the previous year, if the income arising from such taxable securities transactions is included in the income computed under the head “Profits and gains of business or profession”.

No STT deduction available, when the transactions are in nature of “income from capital gains”

It is expressly provided that while computing capital gains or loss, any payment made for securities transaction is not allowed as expense. This is provided in Proviso to section 48 of the I. T. Act which is as under Provided also that no deduction shall be allowed in computing the income chargeable under the head “Capital gains” in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004

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