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Budget 2026: FM Sitharaman Hikes STT on Futures, Triggers Market Sell-off

Finance Minister Nirmala Sitharaman announced a sharp increase in the Securities Transaction Tax on futures and options while presenting the Union Budget 2026-27. The STT on futures was raised to 0.05% from 0.02%, a 150% hike, while the tax on options increased to 0.15% from 0.10%. Experts linked the day's stock market crash directly to this move, warning it could dampen trading volumes and market liquidity. The tax, introduced in 2004, is levied on transaction value and collected irrespective of profit or loss.

Key Points: Budget 2026: STT Hike on Futures & Options Explained

  • 150% STT hike on futures
  • 50% STT hike on options
  • Market crash linked to tax move
  • Aims to boost tax collections
  • Risks reducing market liquidity
2 min read

FM Sitharaman hikes STT on futures to 0.05 pc in Budget 2026; market reacts negatively

FM Nirmala Sitharaman hikes STT on futures to 0.05% & options to 0.15% in Budget 2026, causing a market crash. Experts warn of lower liquidity.

"This is a meaningful jump... likely to have a direct dampening effect on F&O volumes - Aakash Shah, Choice Equity Broking"

New Delhi, Feb 1

Finance Minister Nirmala Sitharaman on Sunday announced a sharp hike in the Securities Transaction Tax on futures and options while presenting the Union Budget 2026-27 in Parliament.

The move marks a significant increase in transaction costs for traders in the derivatives segment. Experts attributed intra-day's stock market crash to hike in the charges.

The STT on futures has been raised to 0.05 per cent from the earlier 0.02 per cent, amounting to a 150 per cent hike.

In the case of options, the tax has been increased to 0.15 per cent from 0.10 per cent, a rise of 50 per cent.

"This is a meaningful jump, not a marginal tweak, and it is likely to have a direct dampening effect on F&O volumes, particularly among high-frequency traders, proprietary desks, and cost-sensitive strategies," Aakash Shah from Choice Equity Broking said.

"Overall, while the move may support near-term tax collections, it risks reducing liquidity and market depth in the derivatives segment, at a time when regulators are already seeking to balance speculation control with maintaining India's competitiveness as a global trading destination," he added.

STT is a tax levied on the value of securities transactions carried out on recognised stock exchanges in India.

It applies to trades in equities, equity mutual funds, and derivatives such as futures and options.

The tax is collected at the time of the transaction, irrespective of whether the investor makes a profit or incurs a loss.

The Securities Transaction Tax was introduced in India on October 1, 2004, with the objective of simplifying tax collection and curbing evasion in equity and derivatives trading.

At the time, it was brought in after the long-term capital gains (LTCG) tax on equities was removed.

However, LTCG tax on listed equities was reintroduced in the Union Budget 2018, while STT continued to remain in force.

In the previous Budget, the government had also raised capital gains taxes, increasing LTCG tax to 12.5 per cent from 10 per cent and short-term capital gains (STCG) tax to 20 per cent from 15 per cent.

- IANS

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Reader Comments

P
Priyanka N
While the market reaction is negative, we must understand the government's need for revenue. If this tax helps fund infrastructure or social schemes, it's a necessary evil. However, I hope they use this money wisely and don't kill the golden goose. Liquidity is crucial for a healthy market.
A
Aakash Shah
As quoted in the article, this is a meaningful jump. The timing is concerning. Global exchanges are competing for liquidity, and such a sharp hike could drive algorithmic and high-frequency trading to other jurisdictions. The aim to curb speculation is good, but the method risks reducing market depth.
S
Sarah B
I'm a long-term investor, so this doesn't affect my SIPs directly. But even I'm worried. If liquidity dries up in the F&O segment, it increases volatility for the underlying stocks too. The government should focus on widening the tax base instead of repeatedly taxing the same set of market participants.
V
Vikram M
Bas, ab trading bandh. This, after the hike in capital gains tax last year? It feels like they are systematically making it harder for the middle class to build wealth through markets. "Make in India" should apply to wealth creation too, not just manufacturing. Very short-sighted policy.
K
Karan T
Maybe this will finally teach people that F&O is not a get-rich-quick scheme but a sophisticated, high-risk tool. The government is right to try and curb excessive speculation. Too many young people are losing money in options trading. This might force them to think about long-term investing instead.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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