Nithin Kamath suggests alternative to ‘death by thousand STT hikes’: ‘If the govt wants to…’

Several social media users and market participants agreed with Zerodha CEO Nithin Kamath that higher taxes could hurt liquidity and price discovery in one of the world’s largest derivatives markets.

Zerodha co-founder and CEO Nithin Kamath on Monday questioned the government’s rationale for hiking the securities transaction tax (STT) on derivatives in Budget 2026, arguing that repeated tax increases may be a blunt instrument that fails to curb speculation while distorting market behaviour.

In a post on X, a day after finance minister Nirmala Sitharaman announced higher STT on futures and options, Kamath said he was “not sure this will do anything” if the stated objective was to reduce speculative activity in the futures and options (F&O) segment.

“95 percent of trading is already in options, and this STT increase will only push that share higher,” Kamath, who leads the country's largest online brokerage firm, wrote. “Why? Because the impact falls mostly on futures, while options are far more speculative than futures.”

Budget changes and government rationale

As announced in the Union Budget 2026, STT on futures has been raised to 0.05 percent from 0.02 percent, while STT on options — both on premium and exercise — has been increased to 0.15 percent. The revised rates will come into effect from April 1, 2026.

The finance ministry has defended the move, citing systemic risk in the derivatives market. According to the Income Tax Department, the total notional volume of F&O trades is more than 500 times India’s GDP, prompting the need to curb what it describes as largely speculative activity. Revenue secretary Arvind Shrivastava said the hike was intended to discourage excessive speculation and protect small investors, Moneycontrol reported.

‘Suitability criteria, not tax hikes’

Nithin Kamath, however, suggested an alternative approach. If the government genuinely wants to rein in speculative trading, he said, it should consider introducing product suitability or eligibility criteria for derivatives trading.

“If the government wants to reduce speculation, then establishing product suitability (who can trade) criteria is the way to go,” he wrote, acknowledging that it may be an unpopular view. Such an approach, he argued, would reduce uncertainty for both brokers and traders, unlike what he described as a “death by a thousand STT hikes”.

Concerns over volumes and costs

Kamath also flagged the risk of steadily rising transaction costs making certain segments unviable. Persistent STT increases, he said, could eventually lead to a material decline in trading volumes as costs eat into profitability.

“You’re already kinda seeing that with futures,” he noted, suggesting early signs of volume pressure in that segment.

Market participants agree with Zerodha boss

Kamath's comments drew sharp reactions online. Some users questioned why brokerages were not opposing the move more forcefully, while others echoed Kamath’s concerns, arguing that higher STT on futures could perversely push traders towards riskier options trading.

"Why are you guys a.k.a the broker community not opposing this vehemently!" asked an X user. "Why does everyone want to remain in the good books of the government? Has our country lost the will to voice its opinions freely? You guys are at the helm, and your opinion should be instrumental in shaping market-related policies!"

Another X user wrote, "The government is aware of these potential effects but proceeded with the policy because it offers an easy way to increase revenue through higher transaction fees and taxes, despite the possible negative consequences on market activity."

Several agreed with Kamath that higher taxes could hurt liquidity and price discovery in one of the world’s largest derivatives markets.

"Increasing STT on futures when 95 percent of volume is already in options is like taxing cyclists to stop people from speeding on bikes. If the intent is to curb speculation, product suitability makes way more sense — not random hikes that only drive more traders towards riskier instruments," an X user commented. "At some point, trading in India risks becoming so costly that serious participants just pack up or move offshore. That’s when volumes really start bleeding."

Another user called the STT hike "a blunt fix". It hits futures more, while options, where speculation is actually higher, stay dominant. If the goal is to curb excess risk, suitability or risk-based access makes more sense than slowly killing volumes with higher costs," the user said.