Budget 2026: In a surprise move, FM Sitharaman hikes STT on F&O trades

The second increase in STT since 2024, effective April 1, seeks to curb excessive speculation in derivatives markets and boost tax collections hit by lower trading volumes this fiscal

In an unexpected move, the Finance Minister Nirmala Sitharaman on Sunday announced an increase in the securities transaction tax (STT) on futures and options (F&O) trades, effective April 1.

 

The second hike since 2024 is aimed at curbing excessive speculation amid rising retail losses and shoring up tax collections—dented by a reduction in trading volumes this fiscal.

 

The STT on futures is proposed to rise from 0.02 per cent to 0.05 per cent of the traded price. On options, the tax will increase from 0.1 per cent to 0.15 per cent of the option premium, while the levy on exercising options will go up from 0.125 per cent to 0.15 per cent of the intrinsic price.

 

 

The last revision in STT rates was announced in the Union Budget for 2024.

 

The government has estimated STT collections for FY27 at Rs 73,700 crore. By comparison, the budget estimate for FY26 was the highest-ever Rs 78,000 crore, while the revised estimate stands at Rs 63,670 crore. The drop in trading volumes following tightening of trading rules by market regulator Securities and Exchange Board of India (Sebi) to prevent excessive speculation have dented STT mop up this fiscal. Experts say the increased STT could boost collections by Rs 10,000 crore if trading volumes and overall markets hold up.

 

In FY24, actual STT collections stood at Rs 52,197 crore.

 

“We are only touching STT on F&O transactions. There is no change on STT for other transactions. When there is speculation which can be highly risky—leading to losses by investors, this nominal increase is aimed at high speculation to discourage it,” the FM said at a press conference after the budget announcements.

 

“When you look at the volumes of transactions of F&O—whether you compare it to the size of GDP or the size of the underlying securities markets—it is in the realm of heavy speculation which results in losses to small and unsophisticated investors. The government’s intention is to discourage speculative tendencies,” added Revenue Secretary Arvind Shrivastava.

 

He added that even after the hike, rates would remain modest relative to the scale of transactions.

 

In calendar year 2025, turnover declined to Rs 391 trillion from Rs 490 trillion in 2024, largely due to limiting weekly expiries and higher contract sizes.

 

According to an earlier report by Sebi over 93 per cent of individual traders incurred losses in the F&O segment.

 

“The budget also deepens financial markets through calibrated measures—higher STT on derivatives to curb excess speculation, PSU asset monetisation via REITs, introduction of bond index derivatives, and a stronger market-making framework for corporate bonds,” said Ashishkumar Chauhan, MD & CEO, NSE.

 

“The recalibration of STT is designed to encourage investor focus on long-term equity participation, thereby fostering healthier liquidity and more sustainable market dynamics,” said Sundararaman Ramamurthy, MD & CEO, BSE.

 

Following the announcement, shares of market infrastructure institutions (MIIs) and stock brokerages fell sharply on concerns that it will lead to a reduction in trading activity.

 

Shares of BSE settled 8 per cent lower at Rs 2,570, while CDSL and NSDL ended down 6.7 per cent and 1.6 per cent, respectively.

 

Brokerage stocks also came under pressure, with Groww parent Billionbrains Garage Ventures falling 5 per cent and Angel One closing 8.6 per cent lower. Nuvama Wealth, 5Paisa Capital, and IIFL Capital Services also saw declines.

 

Derivatives trading is a key profit-generator for several brokers and stock exchanges.

 

“Futures are a margined, risk-managed product and not typically the primary source of retail excess, which raises questions on whether higher STT will deliver the desired outcome or instead weigh on liquidity, participation and India’s market cost competitiveness,” said Pranav Haridasan, MD and CEO, Axis Securities.

 

He added that concerns among foreign investors and domestic traders were reflected in Sunday’s market reaction.