STT collection estimate in Budget 2025 appears overly optimistic, say stock analysts

Stock market analysts in their Budget 2025 review notes said the budgeted figure for the Securities Transaction Tax (STT) for FY26 appears ambitious, considering the declining trend in equity market volumes and the Sebi's restrictions on speculative trading in index derivatives. 

The STT growth seems unrealistic, said Hitesh Jain, lead analyst at YES Securities. The projection of Rs 78,000 crore for FY26 seems overly optimistic, especially when compared to Rs 55,000 crore for FY25, the YES Securities analyst said in a note.

"Growth in income taxes is factored in at 14.4 per cent, with large gains expected in collections of STT. While this would be the slowest annual growth rate since the pandemic period, it underscores a buoyant expectation given considerable revenue foregone of Rs 1 lakh crore due to change in direct tax code and susceptibility of STT collections to market conditions and changing F&O norms," said SBICAP Securities.

This brokerage said the Union’s nominal GDP growth expectation for FY26, at 10.1 per cent YoY, faster than the FY25 first advance estimate of 9.7 per cent, perhaps is rooted in the same optimism.

UBS said equity markets performance this year will determine revenue collections from capital gains tax and STT, which have increased significantly to $15 billion compared to the pre-pandemic period $6.5 billion.

Among Budget announcements, YES Securities noted that the requirements and procedures for speedy approval of company mergers will be rationalised soon. The scope for fast-track mergers will also be widened and the process  made simpler, it noted. Besides, the government announced KYC simplification, as the revamped Central KYC Registry will be rolled out in 2025. YES Securities said it needs to be understood how this may impact existing KYC players.

"Although there is some disappointment over slower  growth in FY26 government capital expenditure on road and railway, the government has maintained the overall capex at the desired levels in percentage of the GDP and the total expenditure.  There has been a significant rise in grants in aid to states for creation of capital assets, which underlines emphasis on capex with a higher multiplier effect," it said.

Net-net, it was a prudent budget, with continued focus on fiscal consolidation, capital expenditure and targeted welfarism, Kotak Institutional Equities said.