New Delhi, Oct. 8 -- The securities transaction tax (STT) was born in July 2004 as one half of a bargain. Long-term capital gains (LTCG) tax on listed equity was axed, while tax on short-term gains was cut to 10%, but a new STT was levied in lieu of that relief. Every exchange trade would bear this tiny levy, collected at source and thus almost impossible to evade.

Capital gains tax was litigation-prone, contested between business income and investment gain. A transaction tax settled the matter at the moment of trade. The levy was never meant to be a revenue source; it was a receipt for the tax-relief it arrived with. Broker pushback within weeks produced differentiated rates that survive today; they are highest on delivery and lowest on...