STT was introduced in 2004 when Long term capital gain tax was removed by the then finance minister PM Chidambaram.
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Retail traders and investors are all thrilled at the prospect of Zerodha CEO Nithin Kamath's expectations from the Budget 2022. The head of India's largest online brokerage platform on Monday revealed his long-anticipated wish for a reduced STT (Securities Transaction Tax). Finance Minister Nirmala Sitharaman is currently holding customary pre-budget consultations with various stakeholders for the Union Budget 2022. FM will present the Budget on February 1.
STT is a direct tax charged on the purchase and sale of securities that are listed on the recognized stock exchanges in India. Since 2016, it is 0.1% for delivery-based equity trading.
STT was introduced in 2004 when the Long Term Capital Gain Tax (LTCG) was removed by the then finance minister PM Chidambaram.
“In the budget of 2018, LTCG of 10% for gains over ₹1 lakh was introduced, but STT wasn’t reduced," he said while responding to a thread on a Zerodha portal.
“For like 15+ years now, first as a trader and now as a broker, every budget day I get up hoping that STT is removed or reduced, but if anything it has only gone up. For very active traders, STT is a very high cost. In terms of transaction taxes, we are probably among the top few markets in the world," he added.
“Zerodha customers alone pay ₹2500 cores in STT, stamp duty, & GST annually. Overall, traders lose more money in transaction costs & impact costs than to the markets," Kamath said.
Arguing why a lesser transaction tax is good for customers, Nikhil said that the transaction costs eat up into the trading capital. “If you add impact costs to this (money lost due to bid-ask spread), I think most active traders lose more money to transaction tax + Impact cost than to the markets."
Playing the devil's advocate, Kamath argues that lower costs can also get customers to trade more often and frequently, leading them to take higher risks, which may not be good as well.
A Twitter user thanked Kamath for this proposal, “genuine concern thanks for raising this issue."
“Biggest pain point is taxation. With so much digital and integrated systems across stock markets , taxation process should be streamlined. A simplified tax scheme for stock traders is very important," another user said.