BT Explainer: How STT charges hike from April 1 will impact investors, F&O traders Old vs new tax

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 will increase to 0.15 per cent from 0.10 per cent and on exercise of options to 0.15 per cent from 0.125 per cent.

The revision applies only to F&O trades, with STT rates across other market segments remaining unchanged.

Why has the government increased STT?

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.

Impact on retail investors and traders

On STT hike, Shrey Jain, CEO of Stocko by InCred Money, said, “The increase announced in the budget and becoming effective from April 1 did come as a surprise to some market participants. Hike will impact retail and high-frequency traders as their transaction cost will go up substantially. Transaction cost changes may influence certain trading strategies at the margin; the broader participation trend remains intact.”

Kranthi Bathini, Equity Strategist at WealthMills Securities, stated, “It is a conscious decision taken by the government to control the heightened trading activity in the derivatives market.”

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.