Supreme Court to Examine Constitutional Validity of Securities Transaction Tax Over Double Taxation and Arbitrariness Claims

NEW DELHI – The Supreme Court of India has initiated a significant judicial review into the constitutional framework of the Securities Transaction Tax (STT), a levy that has been a fixture of the Indian capital markets for over two decades. On Monday, October 6, 2025, a Division Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan issued a formal notice to the Union Government, seeking its response to a writ petition that challenges the legality of the STT as imposed under the Finance Act, 2004.

The petition, filed by stock market trader Aseem Juneja, raises fundamental questions about the nature of taxation and its intersection with constitutional rights, arguing that STT is an unconstitutional levy that violates Articles 14, 19(1)(g), and 21 of the Constitution. The Court, in its order, took particular note of the petitioner's primary contention.

"The principal argument canvassed before us is that the Securities Transaction Tax is the only tax levied in the country on the mere act of carrying out a profession and is sought to be levied irrespective whether there is a profit derived or not," the Court recorded. "This, according to the petitioner, renders the levy almost punitive or deterrent in nature."

The Bench has directed the Centre, through the Ministry of Finance, to file its response within four weeks, setting the stage for a thorough examination of a tax that impacts millions of investors and traders daily.

Background of the Securities Transaction Tax

The STT was introduced in 2004 by the then Finance Minister P. Chidambaram as a measure to streamline tax collection from financial market transactions and curb tax evasion on capital gains. It is a direct tax levied on the value of securities (excluding commodities and currency) transacted through a recognized stock exchange. The rate varies depending on the type of security and transaction, with a common rate of 0.1% applied to both the buyer and seller in equity delivery trades.

The tax was initially positioned as a trade-off for the abolition of long-term capital gains tax on stocks. While the long-term capital gains tax was subsequently reintroduced in 2018, the STT regime has remained in place, leading to a scenario where market participants are subject to both levies.

The Core Legal Challenge: A Multi-Pronged Attack

The writ petition, Aseem Juneja v. Union of India (W.P.(C) No. 657/2025), meticulously lays out several grounds for its constitutional challenge. Represented by Advocate Siddhartha K. Garg, the petitioner clarified that the challenge is not against the quantum of the tax but its fundamental legality and structure.

1. The Argument of Double Taxation: The petitioner's foremost contention is that STT violates the principle against double taxation. A market participant who executes a trade is first required to pay STT on the transaction value. Subsequently, if the transaction results in a profit, the same participant is liable to pay either Short-Term Capital Gains (STCG) tax or Long-Term Capital Gains (LTCG) tax on that profit.

“This violates the principle of double taxation as the petitioner is taxed twice on the same transaction," the petition states. "In short, two principles of taxation are being violated here - one double taxation and second that the tax is applied not on the profits (as it traditionally is) but on the mere transaction itself.”

This structure, the petitioner argues, unfairly subjects the same economic event—the securities transaction—to two separate taxes levied by the same authority.

2. A Punitive Tax on Profession, Not Profit: A central pillar of the challenge is the unique and allegedly arbitrary nature of STT. The petition forcefully argues that STT is the only tax in India levied on the "sheer act of carrying out a profession," irrespective of the outcome. A trader must pay STT even on transactions that result in a financial loss.

"Every tax in India is on the profit at the year-end but STT is applicable even if the stock market trader is operating in a loss," the plea highlights.

This characteristic, it is argued, makes the tax "punitive or deterrent in nature," effectively penalizing participation in the market and infringing upon the fundamental right to carry on a trade or profession under Article 19(1)(g). The petition draws an analogy to illustrate the absurdity, comparing it to taxing a doctor on each consultation fee received, even if the medical practice as a whole incurs a loss for the year.

3. The Flawed Analogy with TDS: The petition addresses the original legislative intent behind STT, which was to function similarly to Tax Deducted at Source (TDS) for the salaried class, thereby ensuring a trail and preventing tax evasion. However, it points out a critical dissimilarity that renders STT inequitable. While TDS is fully adjustable against an individual's final income tax liability and any excess is refunded, STT offers no such mechanism. It is a final, non-refundable, and non-adjustable tax. This dissimilarity, the petitioner contends, makes the tax arbitrary and discriminatory, violating the right to equality under Article 14.

4. Departure from International Norms: To bolster its arguments, the petition also points to international practices, noting that major global financial markets, including those in the USA, Germany, Japan, and Singapore, do not impose a securities transaction tax. This suggests that efficient tax collection from capital markets can be achieved without resorting to such a levy.

The Petitioner's Prayer: Strike Down or Adjust

Given these contentions, the petitioner has presented two alternative prayers to the Supreme Court. The primary request is for the Court to declare the provisions imposing STT as unconstitutional and strike them down entirely.

In the alternative, should the Court find the tax itself permissible, the petitioner has prayed for a direction to the government to amend the law to allow STT paid during a financial year to be adjusted against the trader's final capital gains tax liability, mirroring the mechanism of TDS.

Potential Implications for the Legal and Financial Landscape

The Supreme Court's decision to examine this plea holds profound implications. If the Court finds merit in the petitioner's arguments, it could lead to a fundamental restructuring of how securities transactions are taxed in India.

• For the Government: A ruling against STT would represent a significant fiscal challenge, as it is a substantial source of revenue. The government will need to present a robust defense, likely arguing that STT is a tax on the transaction itself and distinct from the tax on capital gains, thus not constituting double taxation. It may also argue that the tax is a valid exercise of its legislative power to classify subjects of taxation and prevent evasion.
• For Market Participants: For the millions of retail investors, traders, and institutional players, the outcome is critical. The abolition or adjustment of STT could reduce transaction costs, potentially boosting market liquidity and participation. It would be particularly beneficial for high-frequency traders and those operating on thin margins, for whom STT represents a significant operational cost.
• For the Legal Community: The case presents a classic constitutional law challenge involving the intersection of fiscal policy and fundamental rights. It will likely involve a deep dive into the doctrines of double taxation, arbitrariness under Article 14, and the reasonable restrictions permissible under Article 19(6). The Court's eventual judgment will become a landmark precedent on the constitutional limits of transactional taxes.

The Union Government's counter-affidavit will be crucial in shaping the trajectory of this case. As the matter unfolds, it will be closely watched by legal experts, tax professionals, and the entire financial services industry.