Union Budget 2026–27 Proposes Hike in Securities Transaction Tax (STT)

The Union Budget 2026–27 has proposed an increase in the Securities Transaction Tax (STT) on futures and options (F&O) contracts, aimed at addressing excessive speculation in the derivatives market.

Key Changes in STT

• Futures contracts: STT to be raised to 0.05% from 0.02%
• Options premium: STT increased to 0.15% from 0.10%
• Exercise of options: STT proposed at 0.15%, up from 0.125%
• Other asset classes: STT rates to remain unchanged

Rationale Behind the Move

Citing a Securities and Exchange Board of India (SEBI) study, Finance Minister Nirmala Sitharaman noted that nearly 90% of participants in the F&O segment incur losses, highlighting the risks faced by retail investors.

About Futures and Options

Futures and options are financial derivatives that allow traders to take positions on the price movements of underlying assets—such as stocks, indices, commodities or currencies—without owning them. While derivatives play a crucial role in hedging and price discovery, their high leverage makes them especially risky for retail traders.

About Securities Transaction Tax

• STT is a tax levied on every buy and sell transaction in the stock market, including equities and derivatives.
• Introduced in 2004, it was aimed at curbing tax evasion, particularly in capital gains.
• It is a direct tax, imposed directly on the value of transactions.
• The Central Government has the authority to revise STT rates from time to time.

Impact

Although STT rates appear small, the increase will raise trading costs, particularly affecting frequent, high-turnover strategies such as intraday trading and algorithmic trading, potentially discouraging excessive speculative activity in the derivatives market.