WHY STT is deducted for Switch from Growth to Dividend in the same Scheme

Query of Blog Reader

Very recently i did switch in the same scheme but i changed from Growth option to Dividend option, still  Securities Transaction Tax is deducted (STT)?
The scheme being the same, why is STT deducted as this was not redemption?

A Switch involves redemption in one scheme and a purchase into another scheme. Therefore in effect you have redeemed from one scheme and invested into another. 

 

Under Chapter VII of Finance (No. 2) Act, 2004 the unit holder is liable to pay Securities Transaction Tax ('STT') in respect of "taxable securities transaction" at the applicable rates. Taxable securities transactions include purchase or sale of units of an equity oriented fund, entered into on the stock exchange or sale of units of an equity oriented fund to the mutual fund.

Change from growth to dividend option means you are switching  means you are first redeeming the units in that scheme (growth option) and then purchasing in  dividend option as  both are actually different schemes as you know the Nav of Growth and dividend is not the same, as in growth option the appreciation get accumulated where as in dividend its paid or reinvested. 

Whether STT is paid in case of switch from Dividend Reinvestment to Dividend Payout???

No, such transaction is not considered as switch but this is change of Dividend option, and in such case no STT is deducted, if one opt for change of dividend option.