The Centre's luck could run out on its securities transaction tax

A big spike in trading had sent STT collections soaring but market conditions have changed now

- VIVEK KAUL

In 2018-19, the year before the covid pandemic broke out, the securities transaction tax (STT) earned by the Union government was ₹11,528 crore. In 2024-25, the government hopes to earn ₹55,000 crore through it. The budget estimate for 2025-26 is ₹78,000 crore.

First introduced in 2004, STT is levied on transactions involving listed securities on stock exchanges and on units of equity mutual funds (MFs) being redeemed. It's a part of the income tax earned by the Union government. In 2018-19, it formed around 2.4% of the income tax collected. In 2024-25 and 2025-26, it's expected to form 4.4% and 5.4%, respectively.

If the government collects ₹78,000 crore in STT during 2025-26, it would mark a 577% jump from 2018-19. In the seven-year period up to 2018-19, the jump was 104%.

What explains this? Simply put, in the last few years, the buying and selling of stocks, their derivatives (i.e., futures and options) and equity MFs has gone through the roof. From April 2024 to January 2025, the total number of trades in the cash market—where stocks are bought for delivery—at the National Stock Exchange (NSE) increased 187% compared to the entire 2018-19 period.

This would have helped, but doesn't tell us the real story. In 2023-24, the NSE traded 95 billion derivatives contracts. In 2024-25, the exchange has already traded close to 100 billion contracts or 30 times more than in 2018-19. This is where the substantial jump in STT has come from.