STT, LTCG, STCG, income tax rebate: What stock market investors want in Budget 2025

Stock investors seek abolition of Security transaction tax (STT) and increase in tax exemption in the case of Long term Capital Gains tax (LTCG) to Rs 2 lakh from Rs 1.25 lakh at present in the Union Budget 2025. While they expect no change in short-term capital gains tax (STCG), as taxpayers, they expect some relief on personal income tax front from the Finance Minister Nirmala Sitharaman in her eighth and the first full-year Budget of Modi 3.0.

"While it's something investors can hope for, the government's stance last year was quite clear, indicating that tax rates may rise in the future. However, given the market volatility over the past six months, it seems unlikely that the government will take that approach this year—perhaps not until the next one," said Siddharth Oberoi, Founder and  Chief Investment Officer at Prudent Equity.

Security transaction cost in India is too high and LTCG and STT are seen as a sentiment dampener for the market, said Mehta Securities. To recall, STT replaced the long-term capital gains (LTCG) tax in 2004, but the Union Budget 2018 brought back LTCG tax at 10 per cent on annual gains of over Rs 1 lakh, in addition to the existing STT.

Last year, the STT was increased from 0.01 per cent to 0.02 per cent for equity and index trades. LTCG on equity over Rs 1.25 lakh (earlier Rs 1 lakh) has now been subjected to a tax rate of 12.5 per cent.

Ravi Singh of Religare Broking said the government may consider raising the LTCG exemption limit, currently at Rs 1.25 lakh, which could benefit investors by allowing them to retain more of their gains.

"Additionally, there are discussions about possibly abolishing STT to encourage trading activity. However, I feel that maintaining the current tax structures could provide much-needed stability for investors. Ultimately, how these tax policies evolve will significantly influence investor sentiment and market dynamics in the coming year," he said.
 
Amnish Aggarwal of PL Capital  said corporate tax collections remained flat, while income tax grew 23.5 per cent in the first eight months of FY25, driven by a 2.5-3 times increase in LTCG and STCG collections. Capital gains now account for 31 per cent of total income tax collections (up from 17 per cent in 2018).

"Since the government has been promoting investment, major adjustments to the capital gains tax may deter it. From a broader perspective, maintaining policy stability is crucial during economic slowdown and weakened corporate earnings. Therefore, avoiding further changes to STT or LTCG might be the best approach as frequent adjustments create uncertainty for investors," said Puneet Singhania, Director at Master Trust Group.

Sunil Damania, Chief Investment Officer at Mojopms said the recent budgets have seen increased taxation on the capital market — higher STT, capital gains taxes, taxation of dividend income in shareholders’ hands, and the removal of tax benefits on buybacks.

"This year, it’s imperative for the Finance Minister to avoid introducing new taxes on investors. Instead, providing meaningful tax rebates to enhance consumer spending power could help revive the consumption cycle," he said.