- Securities Transaction Tax on Futures raised from 0.02% to 0.05% in Budget 2026
- Options STT on premium increased from 0.10% to 0.15% and on exercise from 0.125% to 0.15%
- STT hike aims to curb speculative trading and boost tax revenue from derivatives market
Finance Minister Nirmala Sitharaman announced a major increase in the Securities Transaction Tax (STT) on Futures and Options (F&O) trades in her Union Budget 2026 on February 1. This is aimed at curbing excessive speculative trading in the derivatives market.
What Changed?
- Futures STT: Increased from 0.02 per cent to 0.05 per cent (a 150 per cent hike)
- Options STT (premium): Increased from 0.10 per cent to 0.15 per cent (50 per cent hike)
- Options STT (exercise): Increased from 0.125 per cent to 0.15 per cent (20 per cent hike)
This means trading F&O is now more expensive, especially for frequent traders.
What Is F&O Trading?
F&O trading (Futures and Options) involves contracts instead of actual shares. Futures are agreements to buy or sell at a set price later, while options give the right to buy or sell by a certain date. It can bring bigger profits but is riskier, as it is like betting on a stock's future price.
What Is STT?
Securities Transaction Tax (STT) is a tax on trades in the stock market, applied on every transaction, whether you make a profit or loss. It applies to equities, equity mutual funds, futures, and options.
Introduced on October 1, 2004, STT was designed to simplify tax collection, reduce tax evasion in equity and derivatives trades, and replace earlier long-term capital gains exemptions. Even after the reintroduction of long-term capital gains (LTCG) tax in 2018, STT has continued to remain in place.
Why Traders Are Concerned
Because the STT hike directly increases trading costs, which affects high-frequency traders, speculative F&O traders, and retail investors the most.
For example, if someone buys a futures contract worth Rs 1 lakh, they used to pay Rs 20 as tax. Now, they have to pay Rs 50. It may not seem like much for one trade, but for traders who buy and sell many times a day, these extra costs can quickly add up, cutting into their profits.
Why The Government Increased STT
- Curb Speculation: Most retail F&O traders lose money. Nine out of 10 according to SEBI. Higher STT makes excessive short-term trades less attractive.
- Boost Tax Revenue: More tax collected from the booming derivatives market.
- Shift Focus Back to Cash Market: Encourages retail traders to focus on equities rather than high-risk derivatives.
Market Reaction
The Nifty 50 fell by 2.96 per cent, while the Sensex dropped 2.88 per cent. Other derivatives-related stocks saw losses of 4-12 per cent.
The Finance Minister also announced that buyback proceeds (money companies pay to buy back shares) will now be taxed as capital gains for all shareholders.
