The tax that eats your gains even before you make them; expert explains investors' growing burden

ITR filing 2025: When the Securities Transaction Tax (STT) was first introduced in 2004, it was pitched as a simple replacement for the Long-Term Capital Gains (LTCG) tax. Traders and investors were told that STT would streamline taxation, bringing predictability. But in 2018, LTCG made a comeback — and STT never left. As Chartered Accountant Nitin Kaushik points out, Indian investors now pay both taxes, leaving many to wonder whether the government is double-dipping into their pockets. STT is levied on the buying and selling of securities traded on Indian exchanges, covering equity, derivatives, equity-oriented mutual fund units, and even certain unlisted shares sold in IPOs. 

Introduced as a simple, upfront levy, STT is collected by the exchange at the time of transaction, regardless of profit or loss. Rates vary depending on the type of security and mode of transaction. Delivery-based trades attract 0.1% on both buy and sell, while intraday trades are taxed at 0.025%. Options and futures attract different rates, with exercised options taxed at 0.125% of the settlement price. Crucially, this tax is collected regardless of whether an investor makes a profit or not. “The government profits even when you lose money or just break even. Heads they win, tails… they still win,” Kaushik quips.

Explosive growth in STT collections

The revenue numbers show just how significant STT has become:

FY 2022-23: Rs 25,085 crore

FY 2023-24: Rs 32,000 crore

FY 2024-25: Rs 53,296 crore (provisional)

That’s a staggering 113% jump in just two years. The collections now dwarf what many brokers and traders combined are able to earn, reflecting how deeply embedded STT has become in India’s financial markets.

Zerodha Founder and CEO Nithin Kamath has called Securities Transaction Tax (STT) the single biggest tax burden for traders, saying it often exceeds brokerage fees. On X, Kamath noted that Zerodha collects more STT for the government than it earns as brokerage, highlighting how trading volumes are highly sensitive to this levy. He explained that STT impacts whether traders prefer cash equities, futures, or options. Kamath added that reforms, such as shifting STT on options from contract value to premium in 2008, made options trading cost-effective and helped volumes surge, though STT still weighs heavily on retail activity.

How STT works

The revised STT charges, effective October 1, 2024, have further increased the cost of trading:

Equity Intraday: 0.025% (Rs 25 per lakh) on the sell side

Equity Delivery: 0.1% (Rs 100 per lakh) on both buy and sell sides

Futures: 0.02% (Rs 20 per lakh) on the sell side (up from 0.0125%)

Options: 0.125% of intrinsic value if exercised; 0.1% of premium for short positions (up from 0.0625%)

For delivery-based trades, STT is charged on both legs of the transaction, raising the effective cost. This means that even long-term investors who simply buy and hold are not spared.

Taxable Securities Transaction	Rate of STT	Person Responsible	Value on Which STT is Charged
Delivery-based purchase of equity share	0.1%	Purchaser	Purchase price of equity share
Delivery-based sale of an equity share	0.1%	Seller	Sale price of equity share
Delivery-based sale of a unit of equity-oriented mutual fund	0.001%	Seller	Sale price of unit
Sale of equity share/unit of equity-oriented mutual fund in a recognized stock exchange (other than delivery/intraday)	0.025%	Seller	Sale price of equity share/unit
Derivative – Sale of an option in securities	0.1%	Seller	Option premium
Derivative – Sale of an option in securities (when exercised)	0.125%	Purchaser	Settlement price
Derivative – Sale of futures in securities	0.02%	Seller	Traded price of futures
Sale of unit of an equity-oriented fund to Mutual Fund (ETFs)	0.001%	Seller	Sale price of unit

The hidden impact

Beyond the numbers, the real sting of STT lies in how it eats into margins before profits are even booked. For small traders and retail investors, frequent transactions amplify the tax burden, often turning marginally profitable trades into losses.

Experts argue that India’s tax structure on capital markets is now over-layered, with STT, LTCG, short-term capital gains tax, and other levies coexisting. While regulators defend STT as an efficient collection mechanism, critics say it penalizes risk-taking and undermines retail participation in equity markets.

As India pushes to deepen its capital markets and encourage household participation, the debate over STT’s fairness is likely to grow louder. For now, however, it remains a tax that investors must pay upfront — win or lose.