Budget 2026: Govt Tamps Down On F&O With Hike in STT

Finance Minister Nirmala Sitharaman has proposed to raise the Securities Transaction Tax on futures and options trading in securities, aimed at reining in excessive speculative activity in the markets. Under the proposal announced in the Budget for 2026–27, the STT on futures contracts will jump to 0.05% of trade value from the current 0.02%, while the tax on options transactions — both on the premium paid and on exercise of options — will be 0.15%, up from the present 0.1% and 0.125%, respectively. This effectively aligns the levy on all types of F&O trades at 0.15% for options and 0.05% for futures, significantly raising transaction costs for active traders.

This marks the third consecutive adjustment to F&O STT in recent years, signalling a policy shift after a long period of stable rates. In 2013, STT on equity futures was cut to 0.01% from 0.017% to lower trading costs. However, beginning 2023 the trend reversed. The Finance Bill 2023 increased the STT on F&O by about 25%, raising the futures tax from 0.01% to 0.0125% and the options tax from 0.05% to 0.0625%. This was followed by a much larger hike in Budget 2024, which effectively doubled the rates.

The government indicated that these measures are intended to discourage rampant F&O trading amid concerns about retail investors taking on unsustainable risks. The latest Economic Survey had highlighted the surge in derivative speculation by individuals and its consequences. Official data show that a vast majority of retail participants lose money in the F&O segment.

A SEBI study found approximately 93% of individual traders in equity F&O incurred net losses, with a combined ₹1.8 trillion lost over the past three financial years. In 2023-24 alone, 91.1% of such traders ended up in the red. Regulators have cautioned that derivative trading often caters to “gambling instincts” of investors and, if left unchecked, could pose broader financial stability risks. The government has echoed these concerns, arguing that the steep STT hike will help deter excessive speculative betting and protect small investors from heavy losses.

Brokerage firms warned that substantially higher transaction taxes could dampen trading volumes and liquidity in the derivatives market.

There is also debate about the fiscal impact of the STT hike. While higher rates per trade could increase tax revenues in theory, this depends on volumes holding up. Notably, prior to the latest proposal, India’s STT collections had surged on the back of a booming equity market – STT revenue jumped 75% year-on-year to ₹44,500 crore by mid-January 2025, exceeding the target for FY2024-25. However, more recently, volume growth has shown signs of cooling.