Union Budget 2026: Equity investors expect relief on STT

Union Budget 2026

• Investors hope Budget 2026 will ease STT and capital gains tax burdens
• Doubling of STT and higher capital gains tax have narrowed investor margins
• Retail investors seek STT relief to boost market participation and returns

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For equity investors, performance is increasingly determined not just by market movements but by how much is left after taxes and transaction charges. With both capital gains tax and securities transaction tax (STT) adding to the cost of investing, the margins have narrowed. As the Union Budget 2026 draws closer, investors are keen to see whether the government eases this layered burden or opts to maintain the status quo.

Senthil R Kumar, MD & CEO of Nitstone Finserv, says any relief in STT would be a welcome step to make markets more accessible and strengthen investor confidence, supporting India’s growing equity culture.

The deepest impact seems to be from the doubling of STT, which was announced in the previous Budget. The rates on options selling were increased from 0.0625 percent to 0.1 percent of the option premium, while STT on futures trades went up from 0.0125 percent to 0.02 percent of the contract value.

At the same time, the tax burden on gains has also risen. Long-term capital gains tax was increased from 10 percent to 12.5 percent, while short-term capital gains moved up from 15 percent to 20 percent. According to brokerages and mutual fund distributors, this combination of higher taxes is dampening the appeal of market-linked investment products.

Investor unease is most evident around STT. When it was introduced in 2004, equity long-term capital gains were exempt, and STT was pitched as a modest, straightforward levy that could replace capital gains tax while improving transaction tracking. Nearly twenty years on, with capital gains taxes firmly back in place, the relevance and structure of STT are once again under scrutiny.

Rohit Jain, Managing Partner at Singhania & Co, notes that STT was introduced to replace LTCG tax. With LTCG now reinstated, the system effectively collects double taxes on the same income, and STT, levied on transaction value rather than profit, becomes a sunk cost that cannot be recovered even in losses.

Calls for STT rationalisation

Retail-focused traders and brokers are hopeful that STT on delivery-based equity trades will be rationalised. They argue that lowering this cost would meaningfully reduce friction for long-term investors and could unlock broader participation in the securities market. Several market voices even feel STT should be removed entirely, given that trading costs are already high due to capital gains tax and brokerage expenses.

SR Patnaik, Partner (Head–Taxation) at Cyril Amarchand Mangaldas, says traders expect the Budget 2026 to rationalise or reduce STT for delivery-based equity trades as it would substantially cut trading costs and boost market activity.

B. Shravanth Shanker of B. Shanker Advocates LLP points out that STT directly erodes long-term post-tax returns and that a calibrated reduction could strengthen household participation without materially affecting revenue.

Ankit Jain, Partner at Ved Jain and Associates, emphasises that while STT is a behavioural tool to discourage excessive speculation, the overlapping tax layers present a psychological barrier for new investors, even if they are less harmful to disciplined long-term portfolios.

Abhishek Dev, Co-founder of Epsilon Money, says the street expects some ease in capital formation measures, especially on STT and related taxes, in the upcoming budget to improve medium- and long-term sentiment.

For small investors, the cumulative burden of STT, capital gains tax, brokerage, exchange charges, and GST significantly reduce effective returns, especially on modest portfolios. Unlike institutional players, retail investors lack the scale to absorb transaction costs efficiently. This layered cost structure discourages frequent participation and long - term compounding. Equity investors are demanding that Budget 2026 treat STT relief as part of a broader transaction cost rationalisation to improve market accessibility.