STT hike aimed at protecting household savings not raising revenue, says CEA Nageswaran

The government’s move on raising Securities Transaction Tax to 0.05% from 0.02% on future and options is aimed at curbing excessive speculation rather than raising revenue, Chief Economic Advisor, V. Anantha Nageswaran said.

• STT on futures raised to 0.05 percent, options to 0.15 percent in Budget 2026
• Move aims to curb speculation, not boost revenue, says Chief Economic Advisor
• Higher STT may reduce derivative trading volumes, industry experts warn

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The government’s move to raising the Securities Transaction Tax (STT) on future and options is aimed at curbing excessive speculation rather than raising revenue, chief economic adviser V Anantha Nageswaran said on February 2.

The budgetary proposal didn’t go down well and was one of the big reasons for the market tanking more than 2 percent on the budget day,  erasing more than Rs 9.40 lakh crore in investor wealth.

“It is important to look at it (STT), not as on the short-term transaction tax on futures and options. It is important not to look at it as a revenue generation measure. The purpose is not revenue. The purpose is to make sure that the hard earned savings of the household do stay with them and help them to maximise their wealth and not be lost in speculation,” the CEA said at a post-budget interactive session organised by the Confederation of Indian Industry (CII).

In her Budget 2026, finance minister Nirmala Sitharaman increased STT on futures from 0.02 percent to 0.05 percent.

"I propose to raise the STT on futures to 0.05 percent from 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," she 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, industry players say.

"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," said Shripal Shah, MD & CEO Kotak Securities.

Talking about the weakness in the rupee, which too has contributed to market volatility, Nageswaran  said that the way to address the domestic currency’s valuation is through boosting manufacturing, which has been given a major thrust in the Budget 2026.

“If you are looking at a long-term reputation as a currency for strength and stability, manufacturing matters. Even if you are good at services sector surpluses, it doesn't really give such a boost to currency valuations as manufacturing does. So that is one element, and the second is we need to have manufacturing goods export and external surpluses to have meaningful and sustained reduction in cost of capital,” Nageswaran said.

The STT hike has drawn criticism from traders and brokers, who say it will raise transaction costs, hurt derivatives activity and weigh on revenues of brokerages, which heavily depend on futures and options volumes, Monyecontrol has reported.

But a section of the market believes the move is aimed at discouraging excessive retail speculation in derivatives. Others argue that the impact will be far more as the additional cost will disrupt high-frequency trading (HFT) models and institutional trading strategies.