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Markets Crash as Sitharaman Hikes Trading Tax in Budget 2026

Indian equity markets plunged during the Union Budget 2026 speech after Finance Minister Nirmala Sitharaman announced a significant hike in the Securities Transaction Tax on derivatives. The Nifty 50 fell 1.45% and the Sensex dropped over 1,000 points, triggering a broad-based sell-off. The STT on futures contracts was more than doubled from 0.02% to 0.05%, while the levy on options premiums was raised from 0.1% to 0.15%. Market experts warn the move will increase trading costs and likely cool derivatives activity and volumes.

Key Points: Nifty, Sensex Plunge on STT Hike in Budget 2026

  • Nifty fell 1.45%
  • Sensex lost over 1000 points
  • STT on futures more than doubled
  • STT on options premium raised to 0.15%
  • Broking and trading stocks hit hardest
2 min read

Nifty down 1.5%, Sensex loses 1000 pts as Sitharaman hikes Securities Transaction Tax

Indian stock markets crash as Finance Minister Nirmala Sitharaman announces a steep hike in Securities Transaction Tax on futures and options.

"The steep increase in STT... could cool derivative activity and lead to a reduction in volumes. - Shripal Shah"

Mumbai, February 1

The domestic equity markets witnessed heavy selling pressure on Sunday as stocks fell sharply during Finance Minister Nirmala Sitharaman's Union Budget 2026 speech, with investors reacting strongly to a steep increase in Securities Transaction Tax on futures and options trades.

The benchmark indices opened deep in the red, reflecting nervous sentiment on Dalal Street. The Nifty 50 index slipped to 24,953.05, down by 367.60 points or 1.45 per cent, while the BSE Sensex fell to 81,221.97, declining by 1,047.81 points or 1.27 per cent.

The sharp fall came immediately after the Finance Minister announced higher STT rates on derivatives trading in the Budget. The move triggered intense selling, especially in stocks linked to trading, broking, and market participation, as investors reassessed the cost of trading in the derivatives segment.

Securities Transaction Tax is a small levy charged by the government on every buy or sell transaction in the stock market, including shares, futures, and options. While it may appear modest, STT directly increases the cost of trading, particularly for frequent traders, hedgers, and arbitrageurs.

In Union Budget 2026, the government proposed a significant hike in STT on futures and options trades. For futures contracts, STT has been increased from 0.02 per cent to 0.05 per cent, more than doubling the earlier rate. For options, STT on the premium has been raised from 0.1 per cent to 0.15 per cent. Additionally, STT on the exercise of options has also been increased to 0.15 per cent.

Market participants said the announcement came at a time when markets were already facing volatility and selling pressure. The sudden increase in transaction costs added to investor anxiety, leading to a broad-based sell-off.

Shripal Shah, Managing Director and CEO of Kotak Securities, said the sharp hike in STT could have a cooling effect on derivatives trading. "The steep increase in STT on futures and options, coming on top of last year's hike, is likely to raise impact costs for traders, hedgers, and arbitrageurs. This could cool derivative activity and lead to a reduction in volumes," Shah said.

He added that the government's intent appears to be moderation of trading volumes rather than revenue maximisation. According to him, any potential revenue gains from higher STT could be offset by a decline in derivative volumes due to higher costs.

With markets already under pressure, the latest Budget proposal is seen as adding further downside risk in the near term.

- ANI

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Reader Comments

P
Priya S
As a small-time investor who dabbles in options for extra income, this hike really pinches. My margins were already thin. Now it feels like the goalposts keep moving. Maybe time to just stick to mutual funds and SIPs.
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Rohit P
The market reaction is an overreaction, as usual. If the FM's intent is to cool excessive speculation (which we saw a lot of recently), then this is a good step for long-term stability. Short-term pain for long-term gain. The focus should be on real investment, not daily trading.
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Sarah B
Watching from the US, this seems like a classic case of killing the goose that lays the golden eggs. High volumes mean more overall revenue, even at a lower rate. A sharp hike might boost treasury in the short run but damage the market ecosystem. Hope they reconsider.
K
Karthik V
The timing is terrible. Markets are jittery, global cues are weak, and now this. My portfolio is deep in the red today. It feels like the common investor is always the one who bears the brunt of such decisions. 😞
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Michael C
Respectfully, I have to criticize the communication here. Such a significant change impacting millions of retail participants deserved a consultation or a phased approach. Springing it in the Budget speech creates unnecessary panic and volatility, which isn't good for anyone.
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