The STT on futures has been increased to 0.05% from 0.02%, while the levy on options premium has been raised to 0.15% from 0.10% and the tax on options exercise to 0.15% from 0.125%, under proposals announced in the Budget presented earlier in the day.
What the Budget changed
Announcing the measures in her Budget 2026 speech, finance minister Nirmala Sitharaman said: “I propose to raise the STT on futures to 0.05 percent from the present 0.02 percent. STT on options premium and exercise of options are both proposed to be raised to 0.15 percent from the present rate of 0.1 percent and 0.125 percent respectively.”
The government said the hike was aimed “to provide reasonable course correction in the F&O segment in the capital market and generate additional revenues for the Government”, proposing to raise the STT on futures to 0.05% from 0.02%, and on options premium and exercise of options to 0.15% from the present 0.1% and 0.125% respectively.
Brokerages and exchanges take a hit
Markets reacted swiftly to the higher levy on derivatives trading. Shares of BSE, Groww (Billionbrains Garage Ventures) and Angel One plunged as much as 13.5% on Sunday during the special live weekend trading session.
BSE shares fell to as low as Rs 2,517.30 on the BSE, while Angel One declined to Rs 2,284.70, as investors priced in the risk of slower derivatives activity following the increase in transaction taxes.
Vishad Turakhia, CEO of Equirus Securities, said BSE generated 60% of its revenues from equity derivatives in H1 FY26, while Angel One derived 75% of its broking revenues from F&O in 9M FY26. Nuvama Wealth is also likely to be impacted, with asset services accounting for about 23% of revenues where income is linked to F&O activity.Turakhia added that the Budget proposal to tax share buybacks as capital gains for all categories of shareholders, with promoters taxed at 30% and promoter companies facing an effective tax liability of 22%, would add to market concerns.
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Higher costs, lower volumes?
Market participants warned that the cumulative increase in STT could raise impact costs for traders and reduce liquidity in the derivatives market.
Shripal Shah, MD and CEO of Kotak Securities, said: “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. The intent appears to be volume moderation rather than revenue maximisation, as any potential revenue gain could be offset by lower derivative volumes.”
Vedant Gupte, founder and CEO of Trackk, said: “The STT hike on futures certainly adds friction for traders, potentially squeezing liquidity and raising the bar for institutional efficiency. It is a near term headwind that explains today’s volatility.” He added: “However, for the Gen Z investor, this correction is a strategic entry point. With growth at 7% and inflation hitting a record low of 1.7%, India’s macro foundation is a ‘Resilience Roadmap’. Whether you are navigating daily price action or building a long term AI and tech portfolio, the key is discipline. Use this dip as dry powder to back quality assets. The era of chasing hype is over.”
Gupte said that volatility could create opportunity for traders who adapt their strategies and for investors deploying capital into sectors aligned with India’s long term growth.
Implications for foreign investors
The higher STT is also expected to weigh on near term foreign portfolio investor flows, particularly among derivative focused and high frequency strategies.
Aakash Shah, technical research analyst at Choice Equity Broking, said the increase in securities transaction tax, especially in futures and options, “is likely to act as a marginal negative for foreign portfolio investor flows in the near term, particularly for high frequency and derivative focused global funds”.
Shah said recent data showed FPIs had already been cautious, with equity outflows of over Rs 41,000 crore in January 2026 alone, reflecting global risk off sentiment, elevated US bond yields and currency pressures. In this context, he said, a higher STT further reduces post tax returns and makes India relatively less competitive for short term and derivative oriented foreign flows. While long only, fundamentally driven FPIs were unlikely to be deterred, he said that, at the margin, higher transaction costs could tilt some global allocators towards other Asian markets, particularly as capital shifts towards the US, Taiwan and Korea.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)