Scrapping STT can attract more investors to trading

New Delhi: Market experts on Thursday said the government should consider relieving traders of the Securities Transaction Tax (STT) on equity trade in the Union Budget, which will be presented by the Finance Minister on February 1, 2022.

The move is expected to boost the capital markets and encourage new investors to start trading, they added. The government had introduced Securities Transaction Tax (STT) in 2004 on transactions in different types of securities.

The rate presently varies from 0.025 per cent to 0.25 per cent depending upon the type of security traded and transaction -- whether sale or purchase. "The investment industry will benefit if the Securities Transaction Tax is abolished, as both long-term capital gains (LTCG) and short-term capital gains (STCG) are in place," said Nikhil Kamath, co-founder of True Beacon and Zerodha.

Nonetheless, if the government does not intervene with STT, it could look at removing the tax on long-term capital gains, he added. Puneet Maheshwari, Director, Upstox, said the government may consider relieving traders of the STT. By doing so, new investors would be encouraged to start trading. "There needs to be more participation in indexes or exchange-traded funds. By offering a lock-in and tax incentives on the lines of equity-linked tax savings schemes, the government can encourage long-term savings in Nifty or Sensex," he noted.

A greater allocation by the government-owned provident funds and pension funds into equity markets could also help, he added. Kamath believes that there is a strong case for easing the listing norms in India while tightening penalties for violation of laws. "While companies reach out to the government requesting a change to existing regulations, allowing unlisted Indian companies to list abroad, I believe it is the right time to work in-house," he said. According to him, entry barriers for companies to get listed are high in India.