He noted that 95% of trading is already in options, and this STT increase will only push that stock higher. “Why? Because the impact is mainly on futures, while options are much more speculative than futures.”
Kamath suggested that instead of repeatedly raising transaction taxes, regulators should consider introducing product suitability standards to determine who is eligible to trade complex derivatives.
“I know it’s an unpopular opinion, but this will remove a lot of uncertainty among brokers and traders. It’s a much better approach than death by a thousand STT increases,” he said.
He also warned that continued increases in the STT could eventually lead to a meaningful decline in trading volumes. “The other problem with the uncertainty from steady STT increases is that at some point you’re going to see a material impact on trading volumes as transaction costs make trading unviable. You’re already kind of seeing that with futures.”
Sharing an older post, Kamath highlighted that STT is the largest tax paid by traders and is significantly higher than brokerage fees. At Zerodha, he said, the amount of STT collected and passed on to the government exceeds the brokerage income the company earns.
Kamath pointed out that trading volumes are highly sensitive to STT levels and that tax structure has historically influenced whether traders prefer cash stocks, futures or options.
He attributed the rise in options trading partly to changes introduced in 2008, when the STT on options shifted from the contract value charge to the premium amount charge, making options significantly cheaper to trade than futures.
“Until 2008, it was almost impossible to trade options because of STT,” he said, adding that the reduction in the number of options STT was a key factor behind Zerodha’s own growth as the company expected a sharp increase in options trading volumes.
He further noted that successive STT changes have had a greater negative impact on cash stocks and futures than on options, as the STT on cash and futures is charged to the total contract value.
Other factors, such as the introduction of weekly expirations and restrictions on intraday leverage for equities, have also fueled the rapid growth in options volume, Kamath said.
While stating that abolishing STT altogether may not be feasible, Kamath suggested that reducing STT for cash and futures and increasing intraday leverage limits could help rebalance market activity. “Increasing cash and futures volumes is a much better strategy than trying to reduce options volumes,” he said.
Published on February 3, 2026
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