Kamath said that as a market participant, he has consistently hoped for a reduction in STT, particularly after long-term capital gains (LTCG) tax was reintroduced. STT was originally brought in when LTCG was set at zero, but despite LTCG making a comeback, STT rates have continued to rise, he noted.
In a move aimed at curbing excessive short-term speculation and aligning equity taxation more closely with other asset classes, the government raised the short-term capital gains tax on equities from 15% to 20% in 2024. At the same time, long-term capital gains tax was increased from 10% to 12.5%. To soften the impact on small investors, the exemption threshold for LTCG was raised from Rs 1 lakh to Rs 1.25 lakh per financial year. Importantly, indexation benefits were not reintroduced.
As things stand heading into Budget 2026, short-term capital gains on listed equities are taxed at 20%, while long-term capital gains are taxed at 12.5% on gains exceeding Rs 1.25 lakh, provided STT has been paid.
The same Budget also raised STT on futures to 0.02% from 0.0125% and on options to 0.1% from 0.0625%, an increase of about 60%. According to Kamath, the immediate impact of this hike was masked by the bull market, which saw strong participation and high trading volumes despite higher costs. However, he said the effect became visible over the past year as market conditions normalised.
Kamath pointed to a shortfall in STT collections compared with government projections to underline his argument. The Budget had estimated STT collections of about Rs 78,000 crore for FY26. Actual collections up to January 11 stand at around Rs 45,000 crore. Even assuming an additional Rs 12,000 crore is collected by March 31, total STT receipts would reach roughly Rs 57,000 crore, nearly 25% lower than the projected figure.
In his view, the higher tax rate may have ended up being counterproductive. Kamath suggested that the government might have collected more revenue had STT not been increased so sharply in 2024, as higher transaction costs tend to reduce trading activity once markets move out of a strong bull phase.He also acknowledged a potential conflict of interest, noting that brokers like Zerodha would benefit from lower STT, and therefore his opinion is naturally biased. Still, the data, he argued, indicates that the elasticity of trading volumes to transaction costs becomes more evident during sideways or volatile market phases.
Kamath’s remarks have added to the broader market debate ahead of the Budget, especially as several brokerages have said expectations are low and that major capital market tax changes are unlikely. With the Budget being presented on a Sunday this year and markets remaining open, trading behaviour could also look different on the day.
Kamath noted that Zerodha is among the few brokers that allow buy-today-sell-tomorrow trades on Sundays, while mutual fund investors should be aware that same-day NAV will not be available for purchases made on that day.