The Securities Transaction Tax (STT) has more than doubled its share of transaction costs for individual traders in the equity derivatives market over the past five years. A detailed study by the Securities and Exchange Board of India (SEBI) reveals that STT accounted for 27% of individual traders' total transaction costs in FY26, a sharp rise from just 13% in FY22.
This shift underscores a significant change in the financial landscape for retail derivatives participants, even as brokerage charges remain the single largest component of these costs.
The Shifting Cost Landscape
While brokerage continues to dominate transaction expenses, its share has actually declined. According to the SEBI study, brokerage represented 44% of total transaction costs in FY26, down from 52% in FY22. Conversely, the STT's contribution saw a substantial surge, increasing from 13% to 27% over the same period.
This rise in STT's share correlates with a significant increase in collections from retail equity derivatives traders. STT collections grew from ₹1,291 crore in FY22 to an estimated ₹6,645 crore in FY26, reflecting both increased trading activity and the higher tax burden.
Rising Burden for Individual Traders
The overall transaction-cost burden on retail derivatives traders remains substantial. In FY26, individual traders collectively paid approximately ₹24,800 crore in transaction costs. Despite a moderation in the number of active traders, the average transaction costs per individual trader increased from ₹26,027 to approximately ₹31,628.
Disproportionate Impact on Loss-Makers
SEBI's analysis also highlights that transaction costs disproportionately affect traders who ultimately incur losses. In FY26, these costs accounted for 35% of the gross losses reported by loss-making traders. For profitable traders, in contrast, transaction costs made up only 21% of their gross profits.
The burden on loss-making traders has shown volatility, peaking at 44% of gross losses in FY25 before moderating to 35% in FY26. For profit-makers, this ratio remained relatively stable, fluctuating between 18% and 23% from FY24 to FY26.
When Costs Erase Profits
A critical finding of the SEBI study is the capacity of transaction costs to transform gross profits into net losses. In FY26, approximately 4.4 lakh traders who were profitable before accounting for transaction costs ultimately ended the year with a net loss. This figure was even higher in FY25, affecting around 5.3 lakh traders.
SEBI noted that this represents roughly 5-6% of net loss-makers, indicating that transaction costs can be the deciding factor for a significant number of traders between a profitable and a losing year.
Broader Context: Widespread Losses
The increasing cost burden comes amid a broader trend of widespread losses among individual derivatives traders. In FY26, a staggering 87.7% of individual traders incurred net losses, with aggregate losses reaching ₹91,685 crore.
These findings underscore the critical role that transaction costs, particularly the growing contribution from STT, play in the economics of high-frequency and short-term derivatives trading, especially for those traders already operating with thin or negative trading outcomes.