Rajya Sabha MP Raghav Chadha Advocates for LTCG Tax Abolition on Equities
In a significant move during the Budget discussion in the Rajya Sabha, Aam Aadmi Party MP Raghav Chadha has strongly urged the government to abolish the Long-Term Capital Gains Tax (LTCG) on equities for individual investors. This demand comes in the wake of Finance Minister Nirmala Sitharaman's announcement of a substantial increase in the Securities Transaction Tax (STT) on derivatives trading as part of the Union Budget 2026-2027.
Chadha's Stance on STT Hike and LTCG Tax
While welcoming the government's decision to hike the STT on futures and options (F&O) trading, Chadha emphasized the need to make LTCG on equities nil for individual investors. He argued that this step would align India with many other countries, such as Switzerland, Singapore, and the UAE, and prevent disincentivising investors. Chadha highlighted that when STT was originally introduced in 2004 by then Finance Minister P. Chidambaram to replace LTCG and curb tax evasion, LTCG was zero. However, with both taxes now in place, investors face a double burden.
In a detailed post on X, accompanied by a video of his Rajya Sabha speech on Monday, February 9, Chadha praised the STT hike on derivatives as a measure to curb reckless speculation. He noted that nearly 90% of retail investors lose money in F&O trades, which often turn markets into gambling arenas. "I welcome the hike in STT on derivatives as it can curb reckless speculation. Nearly 90% of retail investors lose money in F&O, turning markets into gambling," Chadha stated.
Budget Proposals and Impact on Investors
On February 1, 2026, Finance Minister Nirmala Sitharaman proposed significant increases in STT rates. The proposal includes a 150% hike on futures transactions, raising STT from 0.02% to 0.05%, and a 50% increase on options transactions, elevating STT from 0.01% to 0.15%. Chadha believes that while this move can help reduce speculation, abolishing LTCG on equities would further boost household wealth and encourage a shift in savings from traditional assets like gold and real estate into equities.
Chadha's key arguments include:
- Abolishing LTCG tax to avoid disincentivising individual investors.
- Aligning with international practices to foster a more competitive investment environment.
- Reducing market speculation and promoting long-term equity investments.
What is STT and Its Role?
STT is a direct tax levied by the government on every purchase and sale of securities through recognised stock exchanges. This tax applies to equity shares, futures, and options, and is deducted upfront at the time of the trade, regardless of whether the investor makes a profit or incurs a loss. Introduced in 2004, STT was designed to replace LTCG and curb tax evasion, covering both equity and derivatives markets.
Chadha's demand underscores a broader call for tax reforms in the stock market to support individual investors and enhance economic growth. As discussions continue, stakeholders are closely watching the government's response to these proposals.
