Equity investors are increasingly focused on post-tax returns as higher levies on trades and capital gains continue to eat into profits. With the Union Budget 2026 approaching, market participants are watching
whether the government will reconsider securities transaction tax (STT) and capital gains tax or keep the current structure unchanged.
STT hike adds to trading costs
The biggest concern for investors has been the sharp increase in STT announced in the previous Budget. STT on the sale of options was raised from 0.0625 percent to 0.1 percent of the option premium, while STT on futures trades increased from 0.0125 percent to 0.02 percent of the traded value.
Capital gains taxes were also increased, with long-term capital gains (LTCG) tax raised from 10 percent to 12.5 percent and short-term capital gains (STCG) from 15 percent to 20 percent. Brokerages and mutual fund houses say the combined impact is making equity-linked products less attractive.
STT relevance questioned after two decades
STT was introduced in 2004 when equity LTCG was exempt and was positioned as a simple transaction tax that could also help track securities trades. However, experts now question its relevance.
“Regarding STT, yes, it has outlived its original purpose as a simple transaction tax,” Kunal Savani, Partner at Cyril Amarchand Mangaldas, told Moneycontrol. He said systems such as dematerialisation, exchange-level reporting and the Annual Information Statement (AIS) have reduced the need for STT as a monitoring tool.
Retail investors feel the pressure
For retail investors, especially those investing through SIPs, multiple layers of taxation are reducing net returns.
“The current capital gains tax regime presents a dual challenge for retail investors, particularly those utilising SIPs,” Ankit Jain, Partner at Ved Jain and Associates, told Moneycontrol. He added that lowering LTCG tax to 5 percent for long-term investments could improve participation by domestic savers.
STT under Supreme Court review
The levy is also facing legal scrutiny. Rohit Jain, Managing Partner at Singhania & Co, told Moneycontrol that the constitutional validity of STT is currently under challenge.
“The legal issue regarding the validity of the STT is sub-judice and pending before the Supreme Court,” he said, citing concerns around double taxation after the reintroduction of LTCG and the levy being imposed on transaction value instead of profits.
Higher STT affects derivatives activity
Higher transaction costs are also impacting derivatives trading.
“The increase in STT rates certainly escalates the trading cost and impacts high-frequency trades as well as short-term participation,” Rahul Jain, Partner at Khaitan & Co, told Moneycontrol. He added that easing the overall tax burden could help improve market sentiment amid global volatility and sustained foreign investor selling.
