Not a Deterrent”: Zerodha’s Nithin Kamath Questions Logic Behind STT Hike on F&O

The government made a decision in Budget 2026 to increase the Securities Transaction Tax on Futures and Options trading. Zerodha co-founder and CEO Nithin Kamath does not think this is an idea. He said some things about this decision. Nithin Kamath asked if this move will really slow down the retail trading frenzy. He thinks it might just make it more expensive for serious traders to do business. Nithin Kamath also thinks it will not stop people from doing gambling with Futures and Options trading. The Securities Transaction Tax on Futures and Options trading is a deal for Zerodha and Nithin Kamath is worried, about it.

The government has made a change to the tax on buying and selling options, which is called the Security Transaction Tax or STT for short. This change is very significant. The government is trying to slow down the number of regular people who are investing in the options market. This market can be very risky. The head of the Securities and Exchange Board of India or SEBI for short has said before that this trend is a problem for the whole system. The government wants to curb the number of retail investors who are getting into the high-risk derivatives segment. The hike in STT, on the sale of options is the governments attempt to do this. The STT jump is a deal.

The “Gambler’s Fallacy” Argument

Kamath says that raising taxes is not a way to stop people from making reckless investments. He believes that people who trade and want to make a lot of money in one day will not care if they have to pay a little more in fees. Kamath thinks this is because these people are looking for returns like 100% gains in just one day so a small increase in costs will not stop them from doing what they are doing. Kamaths main point is that tax increases are not effective, against people who make investments.

If someone is coming to the markets to take a chance a small increase in Securities Transaction Tax is not going to stop them Kamath said. These people are already losing all their money in cases. All this does is make the government more money while making it harder for professional traders and market makers to provide liquidity. The markets need people like traders and market makers to help with buying and selling but the increase in Securities Transaction Tax makes it tough, for them.

The “Impact Cost” Trap

So there are people who like to guess what will happen in the market. Kamath said we should also think about how the market problems are affecting the whole system of Kamath not just the people who are trying to make a quick profit. The problems in the market are having an impact, on the whole ecosystem of Kamath.

When there is a liquidity crunch people do not have money to invest. This happens because higher taxes make it harder for people to buy and sell things. The difference between the price at which you can buy something and the price at which you can sell it which is called the bid-ask spread becomes really big. This is what we call the impact cost of liquidity crunch. It means that even people who want to invest their money for a time have to pay more money when they want to start investing or when they want to stop investing in something. The liquidity crunch and its impact cost affect everyone, long-term investors because they have to pay more to enter or exit their positions in the market due, to the liquidity crunch.

People who work at desks and buy and sell things very quickly called scalpers might find it hard to make money in India. This is because they do not have a lot of room to make mistakes. So they might decide to move their business to places like GIFT City or Dubai where it is easier for them to work. These places are, like countries where Professional proprietary desks and scalpers can do their job without losing money. Professional proprietary desks and scalpers like to go where they can make a profit so they might choose to go to GIFT City or Dubai of staying in India.

The “Hedging Tax”: For institutional players using F&O to protect their portfolios, the increased STT acts as an additional tax on safety.

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