"Taxing capital gains alongside a Securities Transaction Tax amounts to double taxation of equity investors." Critically examine this in light of India's need for revenue and its goal of deepening capital markets.

The Securities Transaction Tax (STT) was introduced in 2004 and is charged on the value of every stock-exchange trade. It came largely in place of long-term capital gains (LTCG) tax on listed equity. LTCG returned in 2018 and now stands at 12.5% on gains above ₹1.25 lakh, with short-term gains (STCG) at 20% [1]. Investors therefore pay both taxes. The "double taxation" charge is partly valid, but it supports rationalisation, not abolition.

Merits of the double-taxation argument

• The 2004 bargain was broken: STT was the price of the LTCG exemption. Bringing LTCG back without removing STT puts two levies on the same investment.
• Tax even on losses: STT is charged on transaction value, so an investor who sells at a loss still pays it.
• Competitiveness: Industry bodies argue that removing LTCG would raise post-tax returns and narrow India's gap with Korea, Taiwan and Brazil [1].
• The OECD finds the double-taxation case among the stronger justifications for lighter capital-gains taxes [4].

Why the charge is overstated

• The two taxes have different bases: STT taxes transactions (Entry 90, List I), while LTCG taxes realised income (Entry 82). They target different things: trading activity and actual gain.
• Revenue need: Budget 2026-27 raised STT on F&O partly to generate additional revenue [3], which helps fiscal consolidation.
• A tool against speculation: 93% of over 1 crore individual F&O traders lost money in FY22–24, losing more than ₹1.8 lakh crore in total [2]. A per-trade tax raises the cost of churning. Deeper markets need long-term savings, not speculation.
• Equity: Capital gains go mostly to wealthier households. Abolishing LTCG would tax salaries at slab rates while large gains go untaxed.
• Global practice: OECD countries usually tax gains when the asset is sold, often at lower rates [4]. More countries raised capital-gains taxes in 2024 for revenue and fairness [5]. India's lower LTCG rate and exemption threshold already follow this model.

Way forward

• Lower STT on delivery-based trades, or allow STT paid to be credited against LTCG for long holdings.
• Use tapered LTCG rates for holdings beyond three to five years.
• Keep the higher STT on F&O and adjust it using SEBI's loss data. Over 75% of loss-makers kept trading [2], so tax must work alongside regulation.

In short, the STT–LTCG overlap is real, but it is a design flaw and not a reason to give up taxing gains. Targeted relief for long-term investors, with LTCG kept in place, can meet both the revenue need and the goal of deeper markets. This keeps to the constitutional ideal of fair, lawful taxation (Article 265).