Why is STT is not applicable to ETF's?

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Pawan, As far as I know - STT is still applicable for ETFs. Apart from a few like CPSE, STT is still levied. It was however reduced last year from 0.01% to 0.001% on the sell side.

If anyone has other views, please let me know. I might be wrong …

Securities Transfer Tax (STT ) - Currently most ETF’s are exempt from STT upon purchase (not applicable to all ETFs

The STT reduction will increase volumes in Exchange Traded Fund schemes, the Government nod to allow pension funds to invest in ETFs will give further boost these products. 

Only for liquid ETF there is not STT.

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ETFs are attractive investments because of their low costs, diversified holdings, tax efficiency and stock-like features. ETFs are the most popular type of exchange-traded products in the USA and Europe. In India to promote investment activity in ETF and to attract retail investors who can use ETF’s as an easy entry vehicle into the capital markets government has kept very lower security transaction tax (STT). The STT is applicable only the sell side of ETF @ of 0.001%. No STT for GOLD ETF’s and Liquid ETF’s.