Zerodha’s influential co-founder Nitin Kamath has sounded the alarm on the counterproductive effects of escalating Securities Transaction Tax (STT). In a detailed X post, he revealed how these hikes are dampening stock market participation and leading to substantial shortfalls in government tax collections.

Tracing the history, Kamath explained STT’s origins tied to the scrapping of LTCG tax, only for it to persist and intensify post-reinstatement. Budget after budget, rates have inched up, defying market hopes for relief. The 2024 budget delivered a whopping 60% STT increase on F&O: futures from 0.0125% to 0.02%, options from 0.0625% to 0.1%.

A bull run post-budget concealed the blow initially, with volumes holding steady. But reality struck as markets normalized. Over the last year, trading slowed markedly, exposing the tax’s chilling effect.

Government projections for FY25-26 STT revenue at ₹78,000 crore now look overly ambitious. Midway through, only ₹45,000 crore was gathered by January 11. A best-case March push might add ₹12,000 crore, still leaving collections at ₹57,000 crore—a glaring 25% deficit.

‘If STT hadn’t been hiked in 2024, revenues would likely be much higher today,’ Kamath asserted. His analysis paints a cautionary tale for fiscal policy, emphasizing that excessive taxation risks alienating retail investors and undermining the very growth it seeks to fund. As debates heat up ahead of future budgets, Kamath’s voice adds weight to calls for tax rationalization.