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Zerodha's Nithin Kamath: Higher STT Backfires, Hurts Govt Revenue Target

Zerodha co-founder Nithin Kamath argues that repeated increases in the Securities Transaction Tax are negatively impacting trading activity. He highlights the 60% hike on futures and options trades announced in the 2024 budget, which initially went unnoticed during a bull market. However, as market conditions cooled, the higher tax began to suppress trading volumes. Kamath points to a projected 25% shortfall in STT collections, suggesting the government would have collected more revenue without the tax increase.

Key Points: Nithin Kamath: Higher STT Hurting Revenue, Trading Activity

  • STT introduced when LTCG was zero
  • STT hikes continued despite LTCG return
  • 60% F&O STT hike in Budget 2024
  • Bull market masked initial impact
  • Collections falling 25% short of target
2 min read

Higher STT backfiring on revenue collection: Zerodha's Nithin Kamath

Zerodha co-founder Nithin Kamath warns that increased Securities Transaction Tax is reducing trading volumes and causing a revenue shortfall for the government.

"I think the government would've collected a lot more without the 2024 hike. - Nithin Kamath"

Mumbai, Jan 31

Zerodha co-founder Nithin Kamath has raised concerns over the repeated increase in Securities Transaction Tax, saying that higher taxes are slowly hurting trading activity in the markets.

In a recent social media post, Kamath explained that STT was introduced at a time when long-term capital gains (LTCG) tax was removed.

However, even after LTCG was brought back, STT has continued to rise with every Union Budget.

He said that as a market participant, he always hopes for a reduction in STT, but instead sees it increasing year after year.

"As a market participant, I always hope the budget will reduce STT, but it keeps going up. STT was introduced when LTCG was made 0, but now that LTCG is back," Kamath said in a post on social media platform X.

Kamath highlighted the sharp hike announced in Budget 2024, where STT on futures and options (F&O) trades was raised by 60 per cent.

The tax on futures went up from 0.0125 per cent to 0.02 per cent, while the levy on options increased from 0.0625 per cent to 0.1 per cent.

According to him, the impact was not immediately visible because markets were in a strong bull phase and trading activity remained high.

"The 60 per cent F&O STT increase from Budget 2024 (0.0125 per cent to 0.02 per cent on futures and 0.0625 per cent to 0.1 per cent on options) didn't impact volumes much at first, the bull market continued with surging participation," he stated.

"But markets don't always have bull runs; the impact showed up in the year we just had," he added.

However, as market conditions cooled over the past year, the higher STT began to affect volumes.

He also pointed to government projections for STT collections in the financial year 2025-26, which were estimated at Rs 78,000 crore.

But as of January 11, collections had reached only around Rs 45,000 crore. Even if another Rs 12,000 crore is collected by the end of March, the total would be close to Rs 57,000 crore, falling nearly 25 per cent short of the target.

"I think the government would've collected a lot more without the 2024 hike," Kamath mentioned.

- IANS

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Reader Comments

P
Priya S
It's basic economics. Increase tax too much, and people will find ways to avoid it or reduce activity. The government should focus on widening the tax base by getting more people to invest, not by squeezing existing investors dry. 📉
R
Rohit P
Respectfully, while I understand the concern, we also have to see the government's side. They need revenue for infrastructure and welfare schemes. Maybe the hike was too sharp, but some tax is necessary. The shortfall might be more due to the market correction than just the tax.
S
Sarah B
The data doesn't lie. A 25% shortfall in collections is massive. This is a classic case of the Laffer Curve in action. Hope the finance ministry is listening before the next budget. We need rational, data-driven tax policy.
K
Karthik V
This is why so many retail traders lose money! The costs (STT, brokerage, GST) eat into whatever small profit you make. The government should protect small investors, not make it harder for them. Jai Hind, but please review this policy.
M
Michael C
Interesting perspective from a major broker. It takes guts to argue against a tax that probably brings a lot of business to his own platform through high volumes. He's putting long-term market health over short-term brokerage gains. Kudos for that.

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