Securities transaction tax

A tax charged on the value of securities bought and sold on Indian stock exchanges, collected through the broker. It was introduced in 2004, alongside a lower tax on gains from listed shares.

For a delivery trade in equity shares the rate is 0.1% on both the purchase and the sale. Buying and later selling ₹1,00,000 of shares therefore costs ₹200 in tax whatever the profit or loss. Intraday and derivative trades are charged differently. Tax falls on the sell side or on the option premium, and those rates have been raised in recent budgets to cool speculative trading.

If you hold for years it's a small cost. For a strategy that trades often it becomes one of the largest costs, and it has to be in any backtest that claims a profit.

Verify the current rates before modelling a strategy.