Date 1 October 2004. The then Finance Minister P. Chidambaram removed the Long Term Capital Gains (LTCG) tax on stock market profits. In lieu of this he introduced Securities Transaction Tax (STT). The logic was simple – leave tax on profits, tax every transaction. Everything went well for 14 years, but in the 2018 budget, the then Finance Minister Arun Jaitley re-introduced the LTCG tax. By the logic of 2004, STT should have been removed then, because it was brought in place of LTCG. But the government did not remove it. STT increased by two and a half times in the budget of 2026. Now in the budget of 2026, the investor community was expecting that there will be some relief in the STT and capital gains tax (STCG/LTCG) which were increased in the last few years. This is because there has been a slowdown in the market for the last one and a half years, foreign investors are continuously withdrawing their money. But Finance Minister Nirmala Sitharaman, on the contrary, increased the STT on FO trading by two and a half times. The logic behind this step of the government was said to be the safety of retail investors. According to SEBI data, more than 95% of retail traders trading in FO lose money. STT is charged on every transaction. Whenever you buy or sell a share in the stock market, or make a deal in futures and options, the government charges a fee on that transaction. This is called STT. STT is automatically deducted from your trading account and the broker deposits it with the government. Mathematics of STT: Where and when the tax is levied Delivery: When you buy or sell shares for delivery. Intraday: When you buy and sell shares in the same day. FO: When you trade futures or options. Revenue Secretary said – Less experienced investors are losing money. After the budget speech, Revenue Department Secretary Arvind Srivastava said, “The main purpose of increasing STT is that when you look at the transaction volume of FO – whether comparing it with GDP or the real market, it looks like huge speculation to a great extent.” Nitin Kamath said – rules should be made on who can do trading. Zerodha founder Nitin Kamath believes that if the aim of the government is to reduce betting, then increasing taxes may not prove to be effective. On the contrary, this may increase uncertainty in the market. Kamath said- ‘I don’t know what is the real reason behind increasing STT. But, if its purpose is to stop betting in FO, then I do not think it will make much difference. He said that ‘if the government really wants to reduce betting, then the right way is to make rules about who can trade and who cannot. This will eliminate uncertainty between brokers and traders. This method is much better than killing slowly by increasing STT again and again. Profits of broking firms may decrease. Experts believe that this change will affect the ‘discount broking’ ecosystem. The entire business model of platforms like Zerodha, Groww is based on high trading volumes, low margins and retail derivatives. Increase in STT may reduce volumes which will impact their profits. Even in FY 2025, Zerodha’s revenue had fallen by 40% to Rs 8,500 crore. Angel One’s revenue fell 25% to Rs 4,618 crore and Grow’s fell 17% to Rs 3,901 crore. Broking companies are diversifying their business. Due to increasing taxes, these companies are looking for other sources of income. Angel One is now not limiting itself to just broking but is moving towards wealth, credit and insurance. Zerodha is also now planning to move away from discount broking and start charging fees on equity trading and advisory business. At the same time, Grow is emphasizing on its mutual fund (AMC) business. FO Trading: In this, trading is done in contracts instead of shares. In FO trading, trading is done in contracts instead of actual shares. Futures are an agreement in which there is a promise to buy or sell an asset at a fixed price on a future date. At the same time, in options, you get the right to do so within a fixed time, but there is no compulsion. There is scope for higher profits in FO, but it also carries a lot of risk, because in this only the future price of a share is estimated. After the budget, Sensex fell by 1546 points and closed at 80,722. The stock market had closed falling on 1 February after the announcement of increasing STT in the budget. Sensex closed at 80,722, falling 1546 points or about 2%. Nifty also fell by 495 points, it closed at the level of 24,825.
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STT was brought in 2004 to remove LTCG tax: Now the government is collecting both; Tax on F&O trading increased by 150% in the budget
