The sharp 150% hike in Securities Transaction Tax (STT) on derivatives may end up doing the opposite of what it intends, says Zerodha founder and chief executive Nithin Kamath. He raised concerns that higher transaction costs could further tilt India’s market towards speculative options trading rather than cooling it.
“If the goal was to reduce speculative activity in F&O, then I’m not sure this will do anything,” he wrote. “95% of trading is already in options, and this STT increase will only push that share higher. Why? Because the impact falls mostly on futures, while options are far more speculative than futures,” Kamath added.
Rationale of STT Hike
In a post reacting to the Budget announcement, Kamath said he was unclear about the precise rationale behind the STT increase but questioned whether it would curb excesses in the futures and options (F&O) segment at all.
Kamath suggested that “If the government wants to reduce speculation, then establishing product suitability criteria is the way to go,” he wrote, acknowledging that the idea may be unpopular. Such an approach, he argued, would reduce uncertainty for both brokers and traders and be more effective than “death by a thousand STT hikes”.
Kamath argued, “The other problem with the uncertainty from steady STT hikes is that, at some point, you’ll start seeing a material impact on trading volumes because transaction costs make trading unviable,” he said. “You’re already kinda seeing that with futures.”
STT hiked by 150%
Finance Minister Nirmala Sitharaman proposed raising STT on equity derivatives to discourage speculative trading. Under the new rates, STT on futures has been increased to 0.05% from 0.02%, while STT on options has been raised to 0.15% of the option premium, up from earlier levels. Where options are exercised, the levy has also been nudged higher.
In an earlier post from August 2025, Kamath had mentioned that “At Zerodha, the STT we collect and pass on to the government is higher than the brokerage we earn.”
According to Kamath, as detailed in the August 2025 post, “The idea of Zerodha itself came about when the STT for options was brought down to a premium value,” he wrote. “The bet was that people would trade more options. It did play out the way we had thought it would.”
Govt keen to deter speculative trading by retail investors
The push to rein in derivatives trading comes amid mounting concern over retail losses. A SEBI study has shown that about 93% of individual traders in equity F&O continue to lose money, with a majority persisting despite repeated losses.