In a recent post on X, Nithin Kamath, the co-founder of Zerodha, addressed the challenges plaguing intraday equity trading in India, shedding light on the impact of regulatory measures and taxation policies on market dynamics. Kamath’s insights have sparked a conversation within the trading community, drawing attention to the hurdles faced by traders in the current financial landscape.
Kamath highlighted that despite a notable bull run, intraday trading activities have failed to meet expectations, attributing this phenomenon to regulatory constraints and tax burdens. The Securities and Exchange Board of India (SEBI) recently implemented stringent intraday leverage rules, mandating uniform margin requirements for all equity trades. These regulations aim to mitigate excessive risk-taking by ensuring traders maintain a minimum initial margin based on stock volatility. Brokers are now required to monitor peak margin utilization throughout the trading day, with penalties imposed for margin shortfalls. Consequently, leverage has been effectively capped, reducing it from previous levels and dampening intraday equity volumes.
Additionally, Kamath underscored the impact of higher Securities Transaction Tax (STT) on intraday equity and futures trading. The elevated tax rates have exacerbated the financial burden on traders, discouraging participation in these segments. Kamath expressed hope for a reduction in STT on intraday equity and futures trades in the future, highlighting its significance in stimulating trading volumes.
The imposition of STT on intraday transactions has elicited concerns from members of the trading community, who question its necessity alongside existing taxes such as Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). Many traders have opted to shift their focus to Futures and Options (F&O) trading due to the comparatively lower charges, reflecting a trend away from equity trading.
During a recent interaction with Finance Minister Nirmala Sitharaman at the Bombay Stock Exchange (BSE), a broker raised grievances regarding the heavy tax burden faced by the trading community. The broker emphasized the disparity between the risks borne by traders and the profits reaped by the government through taxation. Enumerating the multitude of taxes imposed on every transaction, including STT, the broker highlighted the disproportionate financial strain on traders, likening the government’s role to that of a “sleeping partner” with no active contribution to trading activities.
In response to the broker’s concerns, Finance Minister Sitharaman acknowledged the challenges faced by the trading community but refrained from providing immediate solutions. She acknowledged the intricacies of the taxation system but stopped short of addressing the specific grievances raised by the broker, suggesting a deeper examination of the issues at hand.
Kamath’s observations and the subsequent discussions within the trading community underscore the need for a balanced regulatory framework and taxation policies that promote market liquidity and investor confidence. As stakeholders continue to navigate the evolving financial landscape, the dialogue surrounding intraday trading challenges serves as a catalyst for reform and adaptation in the Indian capital markets.
