Zerodha co-founder Nithin Kamath has raised significant concerns regarding the Securities Transaction Tax (STT), emphasizing that as a market participant, he consistently hoped for reductions in this levy during budget announcements. Instead, he notes that the tax has continued to escalate, adding to the financial burden on investors.
Historical Context and Current Issues
In a detailed post on X (formerly Twitter), Kamath pointed out that STT was originally introduced in India on October 1, 2004, under the Finance Act, 2004. Its primary objectives were to replace the long-term capital gains (LTCG) tax, which was then set at zero, streamline tax collection processes, and curb tax evasion in equity and derivatives transactions. However, with the reintroduction of LTCG on listed equities in the Union Budget 2018, the overall tax load on investors has intensified, as STT was not correspondingly reduced or eliminated.
Impact of Recent STT Hikes
Kamath specifically referenced the 60% increase in STT on futures and options implemented in the Budget 2024. Initially, this hike did not significantly dampen trading volumes, largely due to the ongoing bull market and increased participation from retail investors. Yet, he cautioned that markets are not perpetually bullish, and the adverse effects of higher taxes have become more apparent over the past year, affecting market dynamics and investor behavior.
STT Collection Shortfalls
According to Kamath's analysis, the projected STT collections for the financial year 2025-26 were estimated at ₹78,000 crore. However, as of January 11, collections have reached only around ₹45,000 crore. Even with an optimistic estimate of an additional ₹12,000 crore by March-end, the total would amount to approximately ₹57,000 crore, marking a shortfall of nearly 25% compared to initial projections.
"I think the government would've collected a lot more without the 2024 hike," Kamath remarked, suggesting that the tax increase may have inadvertently reduced overall revenue. He concluded his post by reminding followers that the Union Budget 2026 is scheduled for presentation on a Sunday this year, a detail he highlighted due to its implications for trading activities.
Broader Implications for Traders
Kamath has previously voiced similar concerns about STT, describing it as a pivotal factor driving the surge in options trading volumes in India. In a LinkedIn post, he argued that STT has evolved into the "biggest tax that traders pay," profoundly influencing their trading strategies and platform choices. He revealed that at Zerodha, the STT collected and remitted to the government surpasses the brokerage fees earned by the platform, underscoring the tax's substantial impact on the financial ecosystem.
This ongoing discourse highlights the need for a balanced approach to taxation in the securities market, ensuring it supports investor participation and market growth without imposing excessive burdens.
