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STT Hike May Not Deter F&O Trading Volumes, Says ICRA Report

Credit rating agency ICRA projects a 16% increase in Securities Transaction Tax (STT) collections for FY2027 following the rate hikes announced in the Union Budget 2026. The agency believes trading volumes will remain steady despite higher transaction costs, though it acknowledges a risk of moderation in derivatives activity. The hike continues a policy trend aimed at tempering excessive speculation, as F&O transaction volume reportedly exceeds India's GDP by over 500 times. The revised STT rates will apply to derivatives transactions entered into on or after April 1, 2026.

Key Points: STT Hike Impact on Trading Volumes: ICRA's FY2027 Outlook

  • 16% STT collection spike projected for FY2027
  • Trading volumes expected to hold steady
  • New STT rates effective April 1, 2026
  • Policy aims to curb speculative F&O activity
  • FY2026 STT estimate revised down 18%
2 min read

Trading volume will hold steady despite higher STT imposed in Budget 2026: ICRA

ICRA projects 16% rise in STT collections despite Budget 2026 rate hike, citing steady trading volumes but noting moderation risks for derivatives.

"Nonetheless, some moderation in derivatives activity remains a risk - ICRA"

New Delhi, February 2

With the announcement of hike in the Securities Transaction Tax on futures and options trades in the Union Budget 2026, credit rating agency ICRA projected a 16% spike in the STT collections for the Financial Year 2027, above the revised FY2026 estimate.

In ICRA's view, these budgeted numbers assume that trading volumes will hold steady despite the higher transaction costs.

"Nonetheless, some moderation in derivatives activity remains a risk, which could translate into lower trading turnover and consequently softer brokerage volumes and revenues from the derivatives segment for the securities broking industry," ICRA said.

The proposed increase in STT on F&O trades, following the earlier hike implemented in October 2024, reflects the continued policy intent to temper excessive speculative activity, the report said.

Prior to this proposed change, robust growth in derivatives market participation and the 60% STT hike in H2 FY2025 had led to expectations that STT collections would rise to Rs 780 billion in FY2026 from Rs 522 billion in FY2025, ICRA highlighted.

However, measures aimed at curbing hyperactive trading dampened market volumes, resulting in an 18% downward revision in FY2026 STT collections from the budgeted estimate of Rs 780 billion.

As announced by the Union Finance Minister Nirmala Sitharaman in Budget 2026, the rate of STT on the sale of an option in securities has been increased from 0.1 per cent to 0.15 per cent, the sale of an option in securities where the option is exercised has been increased from 0.125 per cent to 0.15 per cent while the rate of STT on the sale of a future in securities has been increased from 0.02 per cent to 0.05 per cent.

The revised rates shall take effect from the 1st day of April, 2026 and shall apply to derivatives transactions in securities entered into on or after that date.

Issuing FAQs on the rate hike, the Income Tax Department on Sunday said the total volume of transaction in options and futures is more than 500 times of Indian Gross Domestic Product (GDP) and there was a justification to curb speculation.

In Rupee terms, our GDP is 300 lakh crore rupees, while the volume for options and futures is more than 1.5 lakh lakh crore rupees. Therefore, there is justification for increase in rates to curb purely speculative activity in options and futures, it said.

- ANI

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Reader Comments

P
Priya S
As a small-time trader, this hurts. Every increase in STT eats into our already thin margins. The government says it's to curb speculation, but it feels like a revenue grab from the middle class. 😕 Hope volumes don't drop too much.
R
Rohit P
The numbers are staggering! Transaction volume 500 times GDP? That's pure madness. Fully support the government's move. This isn't investing; it's gambling with leverage. Let's channel this money into real economy investments.
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Sarah B
Interesting analysis. The key is whether this actually changes behavior or just becomes a cost of doing business. The previous hike in 2024 led to a revision in collections, so there is some elasticity. ICRA's steady volume assumption might be tested.
V
Vikram M
Good move by FM Sitharaman. So many young people are getting into F&O without proper knowledge and losing their savings. This tax might make them think twice. The revenue can be used for better public infrastructure. 👍
K
Karthik V
While I understand the intent, I have a respectful criticism. Instead of just increasing tax, SEBI and the exchanges should do more to educate investors about the risks. A tax alone won't stop the addiction to quick money.
M
Michael C
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