STT hike on F&O trades to take effect from April 1; trading costs to rise

The increase in securities transaction tax (STT) on futures and options (F&O), announced in the Union Budget 2026–27, will come into effect from April 1, 2026. The government has raised STT on futures contracts to 0.05 per cent from 0.02 per cent, while the tax on options premiums and exercise of options will increase to 0.15 per cent from the current 0.1 per cent and 0.125 per cent, respectively.

Sharing the rationale behind the move, Revenue Secretary Arvind Shrivastava stated that the increase applies only to F&O trades, underlining that STT rates across other segments have been left untouched.

Shrivastava said the move was aimed at curbing excessive speculation in the derivatives market. "When you look at the volume of transactions in futures and options -- whether relative to GDP or to the size of the underlying securities market -- it is largely in the realm of heavy speculation, which often results in losses for small retail investors," he said.

He added that the government's intent is to discourage speculative behaviour and address systemic risks in the derivatives space. "The increase in the rate is essentially in that direction. Even after the hike, STT rates will remain modest when compared with the sheer volume of transactions taking place," Shrivastava noted.

A study by capital markets regulator Sebi showed that over nine out of 10 individual traders in the equity futures and options (F&O) segment continue to incur significant losses.

On the STT hike, Anand James, Chief Market Strategist at Geojit Investments, had said, "On the face of it, this is equity positive as option trades become more expensive."

Aakash Shah, Technical Research Analyst at Choice Equity Broking, noted that while the STT hike may help boost tax collections, it risks dampening trading volumes.