Raghav Chadha Calls For Scrapping LTCG Tax On Equities After STT Hike In Budget Debate

The Union Budget 2026–2027 has reignited debate around stock market taxation, with a fresh call to abolish Long Term Capital Gains Tax (LTCG) on equities for individual investors. The demand has been raised in the Rajya Sabha amid wider discussions on market participation, retail investor protection, and the government’s evolving tax strategy on financial transactions.

The proposal comes shortly after the announcement of a sharp increase in Securities Transaction Tax (STT) on derivatives trading, a move that has drawn mixed reactions across the investment ecosystem.

Demand Linked To Budget Tax Changes

During the Budget discussion in Parliament’s Upper House, Rajya Sabha MP Raghav Chadha welcomed the government’s decision to raise STT on futures and options trading. However, he simultaneously urged policymakers to consider scrapping LTCG tax on equities for individual investors.

He argued that maintaining both taxes together could discourage long-term participation in equity markets. According to him, several global financial hubs have adopted more investor-friendly capital gains frameworks, which help deepen retail participation and strengthen wealth creation.

“I welcome the hike in STT (security transaction tax) on derivatives as it can curb reckless speculation. Nearly 90% of retail investors lose money in F&O, turning markets into gambling. When STT was originally introduced, LTCG was zero. But now with both STT and LTCG in place, investors are disincentivised. I urge the govt to abolish LTCG on equities for individuals, as done in Switzerland, Singapore, UAE & others,” Chadha wrote in a post on X, with a video of his Rajya Sabha speech on Monday, February 9.

He further reiterated his appeal, stating, “My Demand: Make Long Term Capital Gain TAX on Equities NIL for individual investor,” Chadha wrote.

STT Hike Targets Speculative Trading

The government’s latest tax adjustment focuses heavily on derivatives trading, particularly futures and options (F&O), a segment that has witnessed explosive growth in retail participation.

As per Budget proposals announced on 1 February, 2026, STT on futures transactions will rise to 0.05% from 0.02%, marking a 150% increase. Meanwhile, STT on options trades will increase to 0.15% from 0.01%, representing a 50% hike.

The move is widely seen as an attempt to curb excessive speculation in derivatives markets, where high leverage and short-term bets often expose inexperienced investors to heavy losses.

Chadha supported this rationale, noting that a large majority of retail traders end up losing money in derivatives, which raises concerns about financial risk and household savings erosion.

Historical Context Of STT

Securities Transaction Tax was first introduced in 2004 as part of broader efforts to streamline market taxation and reduce evasion. It replaced the earlier framework where long-term capital gains on equities were taxed differently.

STT is levied directly on the purchase and sale of securities conducted through recognised stock exchanges. This includes equity shares as well as derivatives such as futures and options.

One of its defining features is that the tax is deducted at the time of the transaction itself, irrespective of whether the investor makes a profit or a loss.

Push To Channel Savings Into Equities

Supporters of LTCG abolition argue that easing the tax burden on long-term equity investments could reshape household financial behaviour.

Chadha suggested that such a move could encourage individuals to shift savings away from traditional physical assets like gold and real estate and towards financial markets. This, in turn, could deepen capital markets, improve liquidity, and support long-term economic growth.

The argument also rests on the idea that long-term investors contribute to market stability, unlike speculative traders who drive short-term volatility.

Wider Implications For Retail Investors

The debate highlights a broader policy balancing act. On one hand, the government aims to deter high-risk speculative trading through higher transaction taxes. On the other, there is growing pressure to make long-term investing more attractive and tax-efficient.

If implemented, the removal of LTCG tax on equities could significantly alter retail investment strategies, portfolio allocations, and long-term wealth planning.

For now, the proposal remains a policy suggestion raised during parliamentary debate. Any decision on revising capital gains taxation would require formal policy review and legislative action.