What are the statutory rules regarding the applicability of Securities Transaction Tax (STT) and Stamp Duty on transactions in mutual fund units in India?

[ A ]Stamp duty applies @ 5.0% on all redemptions; STT applies @ 10% on every purchase of debt mutual fund units.

[ B ]STT applies equally to both debt and equity funds on every purchase and sale at 1.00% of transaction value.

[ C ]Stamp duty applies @ 0.005% on unit issuance (purchase, SIP, STP, reinvestment) and 0.015% on transfer; STT applies @ 0.001% only on redemption/sale of equity-oriented fund units (zero STT on debt funds).[ CORRECT ]

[ D ]Neither Stamp Duty nor STT applies to any mutual fund transaction under any circumstances.

Takeaway

Option C is correct: Stamp duty applies @ 0.005% on unit issuance (purchase, SIP, STP, reinvestment) and 0.015% on transfer; STT applies @ 0.001% only on redemption/sale of equity-oriented fund units (zero STT on debt funds).

Derivation

Under Indian tax statutes: (1) Stamp duty is levied @ 0.005% of the investment amount on the issuance of mutual fund units (lumpsum, SIP, STP, switch-ins, and IDCW reinvestment) and @ 0.015% on the transfer of units (e.g., demat transfers). (2) Securities Transaction Tax (STT) is levied @ 0.001% on the seller upon redemption or sale of equity-oriented mutual fund units (and 0.025% on non-delivery equity sales). STT is NIL on purchases of equity units and NIL on all debt fund transactions. This tests statutory levies. A frequent error is assuming STT applies to debt funds or purchases.

Why the others fail

A — Stamp duty applies @ 5.0% on all redemptions; STT applies @ 10% on every purchase of debt mutual fund units.

Stamp duty is 0.005% on issuance (not 5.0%), and debt fund transactions are completely exempt from Securities Transaction Tax.

B — STT applies equally to both debt and equity funds on every purchase and sale at 1.00% of transaction value.

Debt mutual funds do not attract STT, and equity fund purchases also have zero STT; STT applies only to equity redemptions at 0.001%.

D — Neither Stamp Duty nor STT applies to any mutual fund transaction under any circumstances.

Stamp duty and STT are active statutory levies enacted under the Indian Stamp Act and Finance Acts governing securities.