The Union Budget 2026 more than doubled the STT on futures and raised levies on options by up to 50%, a move the government said was aimed at correcting excesses in the derivatives segment and managing systemic risk. The measures, announced earlier in the day, triggered a steep sell-off in brokerage and exchange shares during Sunday’s special live trading session, highlighting concerns that higher transaction costs could dent volumes and liquidity.
‘Satta’ under scrutiny
“We are touching only the futures and options segment. No one has increased transaction costs elsewhere. Speculation, what we call ‘satta’ in Hindi, is highly risky, and many people with limited funds face heavy losses. The nominal increase in STT is aimed purely at deterring excessive speculation. We respect market activity, but the government cannot ignore the losses faced by small investors. This tax is only one element to support that policy. How the rest of the market is regulated is up to the market regulator,” Sitharaman said in a statement to the press after her Budget speech.
Announcing the changes in Parliament, the finance minister 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 increase was intended “to provide reasonable course correction in the F&O segment in the capital market and generate additional revenues for the government”.
Revenue department flags systemic risk
Arvind Shrivastava, Secretary in the Department of Revenue, said the changes were narrowly targeted at derivatives, with no increase in transaction costs elsewhere in the market.
“The only change made in STT is in the futures and options. All the other STT rates remain the same. The primary objective of raising the tax rates on STT has been that it is felt that when you look at the volume of transactions in futures and options, whether you compare it to the size of GDP or the size of the underlying securities market, it is largely in the realm of heavy speculation, which results in losses to small retail, unsophisticated investors,” he said.
Shrivastava added that “the government’s intention is to discourage speculative tendencies”, describing the increase as a step to “essentially handle the systemic risk in derivative markets”. “Even after this increase, however, the rates of STT will remain modest compared to the volume of transactions that is happening there,” he said.
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 fell as much as 13.5% during Sunday’s special live weekend trading session.
BSE shares slid 8% at the end of the trading day, while Angel One dropped 8.6%, reflecting concerns that higher levies on derivatives trading could dampen activity in a segment that has become a key earnings driver for exchanges and retail brokerages.
Vishad Turakhia, Chief Executive 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 derivatives activity.
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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, Managing Director and Chief Executive 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 Chief Executive 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.”
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 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”. He noted that FPIs had already seen equity outflows of over Rs 41,000 crore in January 2026, reflecting global risk-off sentiment, elevated US bond yields and currency pressures, and said higher transaction costs further reduce post-tax returns for short-term foreign investors.
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