STT hike may leave traders poorer by Rs 2,000 crore: Zerodha's Nithin Kamath

The government's move to hike securities transaction tax (STT) on the sale of futures and options (F&Os) may mean traders will have to pay an additional Rs 2,000 crore, said Nithin Kamath, assuming that trading volumes will remain the same as last year.

Kamath, the co-founder and CEO of India's leading stock broking firm Zerodha, said if the intent is to get higher collections by increasing STT, an additional tax may not lead to that outcome.

Volumes will likely drop next year on the back of falling new account openings and plateauing active accounts, Kamath said, adding that STT collections could be lower than prior to the hike.

STT is a tax investor has to pay on the total consideration paid or received after making a share transaction. Recently, the government has proposed to increase STT by 25% on sale of futures and options contracts in the Finance Bill. The new rules will kick-in from the next financial year FY24.

Throwing some data into the mix, Kamath said, over the years, STT, stamp duty, and GST on stock market transactions add up to Rs 25,000 crore, while brokerage and exchange revenues are likely at another Rs 25,000 crore. This is separate from taxes paid on profits.

Kamth feels the hike in F&O STT will further move volumes from futures to options. "The actual impact wouldn't be much because over 80% of the volumes coming from options and STT is on premium, not on contract value as it is in futures," he said.

Kamath, who is known for his educational tweets on stock market and related learnings, said any vibrant capital market needs activity across futures and options as they both solve for different needs of traders, speculators, arbitrageurs, and hedgers.

"People think traders, the kinds who trade F&O, don't add value to the capital markets. The truth is the exact opposite. Without traders, it would be impossible for an exchange to exist in its current form, where investors can buy and sell securities with minimal impact costs," he added.

Traders in the futures segment will now have to pay STT of Rs 1,250 on Rs 1 crore of turnover against the earlier levy of Rs 1,000.

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