Union Budget 2026-27: STT increase on F&O to curb speculative trade

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, 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 financial year. 

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 2026-27 (FY27) at ₹73,700 crore. By comparison, the Budget Estimate for FY26 was the highest ever ₹78,000 crore while the Revised Estimate stands at ₹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, has dented STT mopup in FY26. Experts say the incr­eased STT could boost collections by ₹10,000 crore if trading volumes and overall markets hold up. In FY24, actual STT collections stood at ₹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 gross domestic product (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,” said 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 (CY25), turnover declined to ₹391 trillion from ₹490 trillion in CY24, 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 (public sector undertaking) asset monetisation via Reits (real estate investment trusts), introduction of bond index derivatives, and a stronger market-making framework for corporate bonds,” said Ashis­hkumar Chauhan, managing director and chief executive officer (MD&CEO) of the National Stock Exchange (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 and stock brokerages fell shar­ply on concerns that it will lead to a reduction in trading activity. Shares of the BSE settled 8 per cent lower at ₹2,570 while CDSL (Central Depository Services (India) Ltd) and NSDL (Nat­ional Securities Depository Ltd) 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&CEO, Axis Securities.

 

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