Is securities transaction tax (STT) levied on ETFs?

Is securities transaction tax (STT) levied on ETFs?

Some ETFs enjoy a special status—they're exempt from STT. This means you don't pay this tax when buying or selling them. These include:

o   Gold ETFs: Invest in gold without owning physical gold.

o   Liquid/Gilt ETFs: Similar to high-quality, low-risk bonds.

o   International ETFs: Invest in foreign markets from India.

The government wants to encourage investment in these areas, making them more attractive by cutting costs.

STT applies to any ETF except the ones mentioned in the list above, especially those holding Indian stocks (equity ETFs), and you do pay STT. But there's a twist—it depends on your trading style. 

o   a. Long-term investors only pay a minimal STT of 0.001% when selling, not buying.

o    b. Day traders who buy and sell ETFs within the same day incur a higher STT of 0.025%  to discourage rapid trading that can destabilize the market.

Remember, smart investing isn't just about picking the right assets; it's also about understanding the costs. STT on ETFs is a perfect example of how fees can vary, impacting your overall returns.


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