Pitch report: Market players hope for lower STT, LTCG in Budget 2026

Market players are hoping for lower STT and STCG, while pitching for the removal of LTCG from the Union Budget 2026.

• Investors seek lower STT, STCG, and removal of LTCG in upcoming Union Budget
• STT and capital gains tax hikes in 2024 raise market player concerns.
• Experts say high taxes discourage long-term investment and erode market gains

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While the markets have seen sharp swings over the past financial year, from falling deep into the correction zone to notching record highs, investors' wishes from the Union Budget have remained the same. Most market participants wish for the lowering of the securities transaction tax (STT) and short-term capital gains tax (STCG), while many advocate for the removal of LTCG, or long-term capital gains tax, entirely.

In 2024, the STT was hiked sharply during the Union Budget, with the STT on an option increased to 0.1 percent of the option premium, up from 0.0625 percent. The securities transaction tax on the sale of a futures contract rose to 0.02 percent from 0.0125 percent of the price.

Some have pitched for the removal of STT in the cash markets entirely. The tax levied on the buy and sell side of an equity delivery transaction amounts to 0.1 percent, which translates to Rs 100 per Rs 1,00,000.

Further, in 2024, the rate of the long-term capital gains tax was increased to 12.5 percent, up from 10 percent, while STCG was hiked to 20 percent from 15 percent earlier. Brokers, investors, AMCs, and market participants have lamented the higher taxes, stating that they discourage long-term investment. Further, in a financial year marked by volatility, market experts bemoaned the high taxes chipping away at the little gains made.

Vanita Salian Bangera, Head Institutional Sales Trading, Aikyam Capital Group, noted that India’s domestic equity ecosystem has structurally strengthened, with average monthly SIP inflows now doubled to Rs 28,202 crore in FY26 from Rs 13,000 crore in FY23, reflecting that retail investors are a stabilising counterbalance during periods of global volatility.

“In this context, a calibrated rationalisation of LTCG would serve less as a tax concession and more as a behavioural incentive for long-term capital formation. Even marginal improvements in post-tax returns compound meaningfully over long holding periods, reinforcing household participation in financial assets,” added Bangera.

Writing on social media platform X, formerly known as Twitter, market expert Safir Anand wrote that by scrapping LTCG, the markets could outperform, leading to higher collections in STT and STCG. Further, this is turn, would bring back foreign institutional investors. "Most funds are struggling to beat [the market] and hence currently savings are being eroded," added Anand.

However, some believe that no changes to the tax rates will be made. “On the tax front, I do not expect major changes in direct or indirect taxes, other than clarifications, since both regimes have undergone significant reform over the last 12 months,” said Saurav Ghosh, co-founder of Jiraaf.

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