Derivatives trading to get costlier: STT on options premium raised to 0.15%

Budget 2026 raises STT on options and futures to curb speculation

For stock market investors—especially those active in derivatives trading—the Union Budget 2026–27 brings a cost increase to watch out for.

 

In her Budget speech on Sunday, February 1, Nirmala Sitharaman proposed a hike in Securities Transaction Tax (STT) on the derivatives segment, signalling the government’s intent to rein in excessive speculative trading.

 

Under the proposal, STT on options premium will rise from 0.1% to 0.15%, while STT on futures transactions will increase to 0.05%. This means traders who buy and sell derivatives frequently will pay more in transaction taxes on every trade.

 

For long-term investors, the impact is expected to be limited. However, for active traders, intraday participants, and high-frequency traders, the higher STT could significantly raise trading costs and reduce profit margins.

 

 

Commenting on the move, Rajarshi Dasgupta, Executive Director – Tax at AQUILAW, said the move signals the government’s intent to moderate excessive speculative activity in the derivatives market. 

 

"While the impact on long-term investors is minimal, higher transaction costs could reduce high-frequency and short-term trading volumes. The challenge will be to strike a balance between curbing speculative excesses and ensuring that market liquidity and price discovery are not adversely affected. The Government will need to take timely efforts to minimise the impact on market liquidity and price discovery which is expected to come in due time.”

 

For retail traders, the message is clear: derivatives trading may become costlier, making risk management, trade sizing, and strategy selection even more important going forward.  

Costlier F&O Trades Could Drive Shift Towards Mutual Fund Investing

 

The Securities Transaction Tax (STT) hike on F&O at nearly 2.5 times significantly raises the cost of frequent trading. 

 

"This is likely to act as a natural deterrent for retail investors who have been aggressively participating in F&O, redirecting them towards other capital market products like mutual funds, non-F&O direct stocks, which offer a more structured, regulated, and relatively safer route to wealth creation for long-term and regular investors.

 

However, this higher STT costs will eventually affect some categories of mutual funds like arbitrage, SIF, etc. This could marginally increase the effective expense burden for investors in these schemes," said Manish Kothari, CEO, ZFunds.  "The increase in STT will raise trading costs for derivatives market participants, particularly impacting high-volume trading strategies such as algo and HFT. While the move may help reduce excessive speculation, it could compress net returns for active traders and may require some recalibration of trading strategies," said Rajesh Gandhi, Partner, Deloitte India.