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Nithin Kamath flags rising STT burden, says 2024 hike hurt volumes; investors seek tax relief in Budget 2026 amid double-tax concerns.
STT
STT Cut In Budget 2026? Zerodha co-founder Nithin Kamath has raised fresh concerns over the Securities Transaction Tax (STT), saying that as a market participant he had long hoped Union Budgets would reduce the levy — but instead, it has steadily increased.
In a post on X (formerly Twitter), Kamath pointed out that STT was originally introduced when long-term capital gains (LTCG) tax on equities was scrapped. Now that LTCG tax has returned, he said, the overall tax burden on investors has risen significantly.
What is STT?
STT is a tax levied on the value of securities transactions executed on recognised stock exchanges in India. It applies to trades in equities, equity mutual funds, futures and options, and is collected at the time of the transaction, regardless of whether the investor makes a profit or loss.
STT was introduced on October 1, 2004, under the Finance Act, 2004. It was meant to replace LTCG tax, simplify tax collection, and curb evasion in equity and derivatives trades. However, LTCG on listed equities was reintroduced in the Union Budget 2018, while STT remained in place.
Referring to the 60% increase in STT on futures and options announced in Budget 2024, Kamath said the hike initially had little impact on trading volumes as the bull market continued and participation kept rising. But markets do not always remain bullish, he added, and the real impact of higher taxes has become visible over the past year.
Kamath outlines STT collections
According to him, projected STT collections for FY26 were Rs 78,000 crore. However, collections so far (as of January 11) stand at around Rs 45,000 crore.
Even assuming another Rs 12,000 crore is collected by March-end, total collections would reach about Rs 57,000 crore — nearly 25% below projections.
“I think the government would’ve collected a lot more without the 2024 hike,” Kamath said, also reminding users that the Union Budget 2026 will be presented on a Sunday this year.
On the Budget-day trading session, he added: “Markets are open. We’re one of the few brokers that allow BTST trades on Sunday, and you won’t get same-day NAV when buying MFs on Sunday.”
Equity investors expect relief on STT
With Budget 2026 approaching, investors are watching closely to see whether the government eases this layered tax burden or maintains the status quo.
Senthil R Kumar, MD & CEO of Nitstone Finserv, said any STT relief would be a positive step toward making markets more accessible and strengthening investor confidence, supporting India’s growing equity culture.
A key pressure point has been the effective doubling of STT rates announced in the previous Budget. STT on options selling was raised from 0.0625% to 0.1% of the option premium, while STT on futures trades increased from 0.0125% to 0.02% of contract value.
At the same time, taxes on gains have also gone up. LTCG tax rose from 10% to 12.5%, and short-term capital gains (STCG) tax increased from 15% to 20%. Brokerages and mutual fund distributors say this combination of higher transaction and gains taxes is reducing the appeal of market-linked investment products.
Investor discomfort is most visible around STT. When it was introduced in 2004, equity LTCG was exempt, and STT was positioned as a simple, modest levy that could replace capital gains tax while improving transaction tracking. Nearly two decades later, with capital gains taxes fully back, the relevance and structure of STT are once again under scrutiny.
Rohit Jain, Managing Partner at Singhania & Co, noted that STT was introduced to replace LTCG tax. With LTCG reinstated, the system effectively results in double taxation on the same income, while STT — being levied on transaction value rather than profit — becomes a sunk cost that cannot be recovered even in loss-making trades.
Calls for STT rationalisation
Retail-focused traders and brokers are hopeful that STT on delivery-based equity trades will be rationalised. They argue that reducing this cost would lower friction for long-term investors and could unlock broader participation in the securities market. Some market participants even believe STT should be removed entirely, given that trading costs are already high due to capital gains tax and brokerage expenses.
SR Patnaik, Partner (Head–Taxation) at Cyril Amarchand Mangaldas, said traders expect Budget 2026 to rationalise or reduce STT for delivery-based equity trades, as it would significantly cut trading costs and boost market activity.
For small investors, the combined burden of STT, capital gains tax, brokerage, exchange charges, and GST materially reduces effective returns, especially on modest portfolios. Unlike institutional investors, retail participants lack the scale to absorb transaction costs efficiently. This layered cost structure discourages frequent participation and long-term compounding, prompting equity investors to push for STT relief in Budget 2026 as part of a broader effort to rationalise transaction costs and improve market accessibility.
January 31, 2026, 11:37 IST
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