Broking shares fall after increase in LTCG and STT

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Broking shares fell after the FM Nirmala Sitharaman hiked the long-term capital gains tax (LTCG) and Securities Transaction Tax (STT) in the Budget 2024-25.

Motilal Oswal Financial Services, 5paisa, ICICI Securities, Angel One, IIFL Securities, and Geojit Financial Services fell 2-5 percent after the announcement.

The Union Budget for 2024-25 has hiked LTCG to 12.5 percent from 10 percent, while short-term capital gains tax is now 20 percent on specified financial assets.

Plus, Security Transaction Tax (STT) on sale of an option in securities was increased from 0.0625 per cent to 0.1 per cent of the option premium. On the sale of a futures in securities, it was increased from 0.0125 per cent to 0.02 per cent of the price at which such futures are traded.

When STT is increased, it lowers the volumes because traders would not trade as frequently as they do now as the overall trading costs would go up.

Madhusudan Kela in a conversation with CNBC TV18 said that the increase in STCG, LTCG taxation, and STT on F&O was not in line with expectation of market participants.

He further said, "The government wants the markets to cool off. While the fiscal math was adding, this wasn’t the basic expectation of market. Already the markets have run off very high in the last few months, some kind of a correction because of this is not overruled and that’s what markets are showing now."

Kirang Gandhi, personal financial mentor said, the increase in LTCG, STCG, and STT, has caused some market instability as investors react to the higher taxes. He added that while the goal is to raise more revenue, these changes might discourage short-term trading and make long-term investments more attractive, potentially changing how the market behaves in the coming months.

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