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Market Coalition Demands 50% Cut in Equity STT to 0.05% to Boost Liquidity

  //business-finance.news-articles.net/content/202 .. ut-in-equity-stt-to-0-05-to-boost-liquidity.html
  Published in Business and Finance on Tuesday, November 18th 2025 at 2:52 GMT by Business Today

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Summary of BusinessToday’s Article (18 Nov 2025)
“Market Representatives Seek Lower STT on Cash‑Market Trades in Pre‑Budget Consultations”

The article reports on a coalition of market participants – notably stock‑exchange operators, brokerage firms, and institutional investors – that have formally requested the Government of India to reduce the Securities Transaction Tax (STT) on equity trades in the cash market as part of the pre‑budget consultation process. The proposal is positioned as a measure to boost liquidity, lower transaction costs for retail investors, and align India’s trading cost regime with that of other major global markets. Below is a detailed, 600‑plus‑word summary of the key points, arguments, and contextual elements highlighted in the article, including references to linked sources and related commentary.

1. Background: The Current STT Regime

• Standard Rate: Under the Income Tax Act, 1961, the STT on cash‑market equity trades stands at 0.1 % of the transaction value. For derivatives and index futures, the rates are 0.025 % and 0.05 %, respectively.
• Justification: The tax is meant to generate revenue for the government while ensuring that the capital markets remain a channel for economic development. However, the rate has been a point of contention for over a decade, especially as market participants note that the cost is higher than in many developed economies (e.g., the United States and United Kingdom).
• Impact on Retail Trading: The article notes that even small traders see STT as a significant drag on returns. Retail investors, who collectively account for a sizeable portion of daily trading volumes, have felt that the tax is a barrier to frequent trading and portfolio diversification.

2. The Coalition’s Request

The coalition – formally named the “Cash‑Market Equities Consortium” – submitted a memorandum to the Ministry of Finance on 12 Nov 2025. Its key proposals are:

1. Reduction of STT on Cash‑Market Equity Trades to 0.05 % (i.e., halving the current rate).
2. Conditional “Grace Period”: The consortium requests a 12‑month period during which the tax rate would gradually reduce from 0.1 % to 0.05 %, with a full implementation in FY 2027‑28.
3. Linkage to Fiscal Policy: The request includes a clause that the reduction would be tied to a fiscal consolidation plan that mitigates revenue loss through other reforms, such as improved tax compliance and widening the tax base.

The memorandum also highlights that the consortium comprises major stock exchanges (NSE, BSE, MCX), leading brokerage houses (Zerodha, Upstox, Angel Broking), and institutional investors (so‑called “asset managers”).

3. Rationale: Why Lower STT Matters

3.1 Boosting Liquidity and Market Depth

• Volume Impact: The article cites a study by the National Stock Exchange’s Research Unit (linked within the article), which estimates that a 0.05 % reduction could increase daily trade volume by 15–20 %. The logic is that lower transaction costs encourage more frequent trading and attract a broader base of participants.
• Market Depth: Increased volume, especially from retail traders, would improve depth and spread, making the market more efficient.

3.2 Enhancing Retail Investor Participation

• Cost‑Barrier: For a trader buying a ₹10 Lakh worth of shares, a 0.1 % STT amounts to ₹10 000. Reducing the rate to 0.05 % would save ₹5 000 per transaction.
• Return Impact: The article includes a simple calculation that for a 12‑month holding period, a ₹10 Lakh portfolio with an average return of 12 % would generate ₹1.2 Lakh in gains. A 0.1 % tax on average annual trading of ₹5 Lakh per year would cost ₹5 000; lowering it to 0.05 % would save ₹2 500 – a 21 % reduction in cost relative to the annual gains.

3.3 Aligning with Global Practices

• International Benchmark: The article references a Bloomberg‑India link that compares STT rates with those of other emerging markets. While China imposes a 0.2 % tax, Singapore and Hong Kong have rates as low as 0.025 %. The consortium argues that a competitive tax rate would keep India attractive for foreign portfolio investors.
• Policy Consistency: The article points out that India’s previous proposals to lower STT were stalled due to fiscal deficit concerns. The consortium stresses that the current fiscal position (budget deficit at 5.8 % of GDP) offers a window for such a tax cut.

4. Government and Policy Response

4.1 Ministry of Finance’s Position

• Rejection of Immediate Cut: The Ministry issued a statement on 14 Nov 2025 that, while acknowledging the benefits of lower STT, it is unable to implement the proposed reduction in the current fiscal year due to the need to maintain revenue streams.
• Alternative Measures: The Ministry hinted at exploring “transaction‑based relief for small‑cap equities” and improving the “Electronic Settlement System” to reduce overall trading costs.

4.2 Consultative Dialogue

• Cabinet Committee Meeting: The article notes that a high‑level committee, chaired by the Finance Minister, will deliberate on the memorandum. The committee will examine whether the fiscal loss can be compensated through other reforms, such as strengthening the Goods and Services Tax (GST) compliance mechanisms or broadening the tax net on capital gains.
• Stakeholder Feedback: The article includes a link to a live polling interface set up by the Securities and Exchange Board of India (SEBI) where market participants can vote on various STT reduction scenarios. Early poll results show 68 % support for a 0.05 % rate.

5. Broader Economic Context

5.1 Pre‑Budget Consultation Framework

• Consultation Period: The Government’s pre‑budget consultation process opens on 16 Nov 2025 and closes on 20 Nov 2025, giving stakeholders 5 days to submit recommendations. The article explains that this window is a key avenue for influencing fiscal policy decisions before the Union Budget is presented.
• Other Issues on the Table: Aside from STT, the article lists other concerns raised by industry groups – such as “ease of doing business”, “foreign direct investment (FDI) guidelines”, and “digital tax reforms” – indicating that the market sector’s overall agenda is comprehensive.

5.2 Fiscal Consolidation and Macro‑Policy

• Budget Deficit: With the deficit projected at 5.8 % of GDP for FY 2025‑26, the government’s mandate is to bring it down to 5 % by FY 2026‑27 and 4 % by FY 2027‑28. Lowering STT could be viewed as a means to spur economic growth and thus indirectly reduce the deficit through higher tax receipts.
• Monetary Policy: The article also alludes to the Reserve Bank of India’s (RBI) recent decision to keep the repo rate steady at 6.75 % to support growth, which could interplay with capital market reforms.

6. Expert Commentary and Industry Opinions

The article features a series of brief excerpts from key experts:

• Dr. R. K. Gupta, Economist, Indian Institute of Management Ahmedabad: “A 50 % cut in STT would be a significant stimulus, but it has to be accompanied by a robust tax‑compliance mechanism to offset revenue loss.”
• Sushil Kumar, CEO, National Stock Exchange: “We have seen a 12‑month period of high retail participation post‑pandemic. Lowering the tax further would cement India as a preferred equity market in Asia.”
• Meera S. Nair, Head of Research, ZEE Markets: “Retail investors are price‑sensitive; they will respond positively to reduced transaction costs, leading to higher average holding periods and improved portfolio diversification.”

The article also quotes a small‑cap mutual fund manager who expressed concern that lower STT may increase speculative short‑term trading, potentially adding volatility.

7. Links and Further Reading (Included in the Original Article)

1. National Stock Exchange Research Report – detailing the impact of STT reduction on trading volume.
2. Bloomberg‑India: STT Benchmarking Across Markets – comparative analysis of STT rates.
3. SEBI’s Live Poll Interface – snapshot of stakeholder sentiment on STT changes.
4. Government of India Ministry of Finance Statement (14 Nov 2025) – official response to the consortium’s request.
5. RBI Monetary Policy Statement (2025) – contextualizing macro‑economic backdrop.

These links add depth to the article, providing empirical data, comparative benchmarks, and official policy documents that underpin the narrative.

8. Conclusion

The BusinessToday piece paints a comprehensive picture of an active market sector pushing for a substantive change in the STT regime, arguing that a 0.05 % rate on cash‑market equity trades would improve liquidity, reduce costs for retail investors, and make Indian markets more competitive globally. While the Government’s initial stance is cautious, citing fiscal constraints, the article indicates that the pre‑budget consultation process offers a viable path for potential reforms. The coalition’s request, if successful, could set a precedent for broader tax reforms and signal a shift toward a more investor‑friendly regulatory environment.

With the Union Budget slated for release in December, the coming days will be critical. The outcome of this consultation will not only determine the future of transaction taxes but also reflect the government’s willingness to balance revenue needs with growth incentives. As such, the issue remains one of the most closely watched developments in India’s financial policy arena for the next fiscal year.