The Union Budget is always a moment of reckoning for investors, and 2025 is no exception. As Finance Minister Nirmala Sitharaman prepares to announce the fiscal plan, retail investors are pinning their hopes on much-needed relief from Securities Transaction Tax (STT), Long-Term Capital Gains (LTCG) tax, and Short-Term Capital Gains (STCG) tax. With a growing tax burden and tightening margins, market participants are looking for reforms to reignite confidence in India’s equity markets.
The Weight of STT: A Case for Abolition
STT, which was increased in Budget 2024 from 0.01% to 0.02% for equity and index traders, has sparked concerns across the investor community. This tax applies to every buy-and-sell transaction on the stock exchanges, cutting directly into traders’ profitability. Industry voices have grown louder, calling for its complete abolition.
As CA Suresh Surana notes, “The simultaneous rise in LTCG tax from 10% to 12.5% has disproportionately impacted investors compared to other asset classes. Removing STT would alleviate some of this pressure.” The argument is clear: with LTCG rates now on par with taxes for other investments, retaining STT feels redundant.
LTCG Tax: Raising the Threshold
Currently, LTCG tax applies to gains exceeding ₹1.25 lakh on listed shares and equity mutual funds, taxed at 12.5% after the Budget 2024 amendments. Many are lobbying for this threshold to be raised to ₹2 lakh or higher. Such a move would allow retail investors to hold on to more of their returns, incentivizing long-term equity investments.
However, as Surana admits, the likelihood of this change remains slim. Instead, some hope for streamlining across asset classes, as Niranjan Govindekar of BDO India suggests. “Treating international equities the same as domestic equities or aligning tax rates across debt funds and gold funds would simplify the tax structure,” he explains.
STCG Tax and Market Impact
The hike in short-term capital gains tax from 15% to 20% in the last budget has also raised investor liabilities, especially for those trading with a shorter horizon. Rahul Charkha, Partner at Economic Laws Practice, suggests rolling back STT and reducing the LTCG tax rate to the earlier 10%. He points out that STT alone can reduce short-term gains by 1-2% for active investors, a significant blow to their bottom line.
Broader Economic and Market Expectations
From a capital market perspective, Manish Chowdhury of StoxBox emphasizes the importance of fiscal prudence alongside policy continuity. With signs of an economic slowdown and sluggish corporate earnings, measures like a fiscal deficit target near 4.5% for FY26, a 10-12% capex growth, and initiatives to revive private sector investments are seen as critical. “Simplifying tax structures and raising exemption limits could also boost urban consumption,” Chowdhury adds.
Despite these expectations, Chowdhury tempers optimism with realism, predicting no major changes to STT, LTCG, or STCG this year. “While this might disappoint some, maintaining the status quo could still be taken positively by market participants looking for stability,” he says.
A Balancing Act for Retail Investors
As Budget 2025 looms, the key question remains: can the government strike a balance between fiscal discipline and easing the tax burden on retail investors? With calls to abolish STT, raise LTCG thresholds, and simplify tax structures, the stakes are high. Whether these reforms materialize or not, the message is clear—retail investors are ready for a break, and the markets are watching closely.
