The stock brokers’ association urges FM Sitharaman to withdraw the proposal for tax hike on securities transactions

A group of stockbrokers on Thursday called on Finance Minister Nirmal Sitharaman to withdraw the budget proposal to hike taxes on securities transactions. While presenting the Budget on February 1, Sitharaman announced the increases in STT (securities transaction tax), saying the move will “provide reasonable course correction” in the Futures and Options (F&O) segment and generate additional revenue for the government.

The Budget for FY27 has proposed to increase the STT on Futures from the current 0.02 percent to 0.05 percent, and increase the STT on option premiums and exercise of options to 0.15 percent from the current rate of 0.1 percent and 0.125 percent respectively. Markets saw a sharp decline in the wake of the announcements.In a letter to the Finance Minister, the Association of NSE Members of India (ANMI) said that after the increase, the total cost of futures trading will almost double due to the sharp rise in the STT. She added that the tax will account for 84 percent of the total cost of futures trading.

“ANMI respectfully requests your good offices to consider a rollback of the recent increase and a rationalization of the STT, especially in the cash market segment, with a view to reducing transaction costs and improving market liquidity,” the letter reviewed by PTI said.

It said the STT has been steadily increased over the past two years and the measure may not aim to limit speculative activity in the markets.

“The higher incidence of STT disproportionately impacts futures trading, even though options are generally considered more speculative in nature,” the letter said, adding that a more balanced and calibrated approach to transaction tax would help maintain market efficiency. ANMI noted that trading costs in India are relatively higher compared to global markets and warned that an increase in transaction costs could have unintended consequences on market liquidity and participation.

“Given that derivatives represent a substantial portion of total market volumes, the higher STT is likely to discourage active participation, negatively impact liquidity and reduce risk management efficiency,” the report said in the letter.

This will have a “direct impact” on brokerage revenues and the overall vibrancy of the markets, said ANMI, which represents trading members of the National Stock Exchange of India, BSE and Multi Commodity Exchange of India (MCX).

The rollback of the measure will increase market participation, increase business for intermediaries and further strengthen India’s position as a globally competitive capital market, the report said.