The Securities Transaction Tax (STT) collections have witnessed an unprecedented rise, soaring by over 75% to ₹44,538 crore as of January 12, 2025, compared to ₹25,415 crore during the same period in 2024. This remarkable growth comes despite the recent hike in STT rates for futures and options (F&O) transactions, implemented in October 2024 to curb speculative activity in the segment.
Budget Proposals Lead to Higher STT Rates
Union Finance Minister Nirmala Sitharaman, in the 2024-25 Budget presented on July 23, 2024, proposed doubling the STT on F&O transactions. The revised rates increased STT to 0.02% on futures and 0.1% on options, up from 0.0125% and 0.0625%, respectively. Despite these changes, STT collections have consistently climbed, reaching ₹16,634 crore in July 2024 and ₹40,114 crore by December 17, 2024, before crossing the ₹44,500 crore mark in January 2025.
Stock Market Trends Amid STT Growth
The rise in STT collections occurred alongside significant stock market volatility. The BSE Sensex, which peaked at 85,978.25 on September 27, 2024, later corrected to 76,499.63 by January 14, 2025. Analysts have noted that STT collections appear to be decoupled from market trends, rising during both bullish and bearish phases.
Retail Participation and F&O Turnover Decline
Retail investors and mutual funds have remained active in the market despite volatility. However, premium turnover in the F&O segment on the NSE has declined, dropping from ₹54.38 lakh crore in September 2024 to ₹17.47 lakh crore in January 2025. This decline follows restrictions imposed by the Securities and Exchange Board of India (SEBI) to limit speculative trading by retail investors.
Government Revenue Exceeds Estimates
The surge in STT collections has significantly boosted government revenue, surpassing the Budget estimate of ₹37,000 crore for 2024-25. For comparison, STT revenue was ₹32,000 crore in 2023-24 and ₹25,085 crore in 2022-23.
Calls for Reduction in STT
While higher STT rates have augmented government revenue, they have also led to increased costs for market participants. The Association of Mutual Funds in India (AMFI) has urged the government to roll back the STT hike for arbitrage and equity savings funds in its Budget 2025-26 proposal. These funds, which primarily use F&O instruments for hedging, have faced rising costs due to the revised rates.
Future Implications
As policymakers continue to monitor the impact of higher STT rates on market dynamics, the debate between curbing speculative activity and fostering market participation remains ongoing. With the Budget 2025-26 around the corner, stakeholders eagerly await further clarity on the government’s approach to balancing these priorities.
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