Mumbai’s trading circles are buzzing with concerns over the repeated hikes in Securities Transaction Tax (STT), as voiced by Zerodha co-founder Nitin Kamath. In a candid social media post, Kamath highlighted how these increases are stifling market activity and ultimately backfiring on government revenues.
Kamath pointed out that STT was originally introduced to compensate for the removal of Long-Term Capital Gains (LTCG) tax. However, even after LTCG was reinstated, STT kept climbing with every budget. ‘As a market participant, I always hope for a reduction in STT during budget announcements, but it only rises year after year,’ he wrote on X.
The most significant jump came in Budget 2024, where STT on futures and options (F&O) trading surged by 60%. Futures STT rose from 0.0125% to 0.02%, while options saw it climb from 0.0625% to 0.1%. During the ensuing bull market, the impact was masked by high volumes, but as markets cooled over the past year, trading activity plummeted.
This downturn has directly hit government coffers. For FY 2025-26, the target was ₹78,000 crore from STT. Yet, by January 11, collections stood at just ₹45,000 crore. Even with optimistic end-of-March figures adding ₹12,000 crore, totals would hover around ₹57,000 crore—25% short of the goal.
Kamath argues that avoiding the 2024 hike could have yielded far higher revenues. ‘Higher taxes are gradually eroding trading volumes, hurting everyone involved,’ he noted. His comments underscore a broader debate on balancing revenue generation with market vitality, urging policymakers to reconsider their approach before irreversible damage sets in.