STT hiked in Union Budget to curb F&O frenzy, capital market stocks sink 15%

STT on futures and options hiked in Union Budget 2026.

• STT on futures raised from 0.02% to 0.05%, options premium hiked to 0.15%
• BSE shares fell 14%, brokerages sank after STT hike announcement
• Move aims to moderate F&O volumes, not just boost government revenue

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To curb the F&O frenzy the Finance Minister Nirmala Sitharaman has proposed to increase the Securities Transaction Tax (STT) on the Futures and Options transactions. As per the budget speech, the proposal is to increase the STT on Futures from 0.02 percent to 0.05 percent. Also, the STT on options premium and on the options exercise has been hiked to 0.15 percent. The existing STT on the premium is 0.10 percent and on the Options exercise is 0.125 percent.

Nirmala Sitharaman said, " 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".

At 12:30 PM, post this announcement, BSE shares were down around 14 percent, brokerages Angel One and Nuvama shares also sank 10 percent, while the the NSE Capital Market index was lower by 6 percent.

The market was expecting some tweaks on STT, as there were demands to deepen the cash market, taxes on derivative trades need to be hiked. SEBI’s study also suggested that 9 out 10 individual traders were making losses in F&O.

Market veteran Shankar Sharma wrote on X, “I love this Budget for ONE major reason: hiking of STT on derivatives. Derivatives are a poison x cocaine, eating away at the roots of our youth. Its destructive effect will be felt by generations. It's a pure wealth transfer from the traders to F& O specialist brokers, who have been massive winners of this drug + gun trade. (Not their fault). F&O adds zero value to India. It deducts inestimable value". Sharma further said, " It can't be stopped but it can be taxed the hell out of.  Kudos to the Finance Minister".

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

The heightened discussion around derivatives trading and its growing influence on domestic investors reflects the authorities’ increasing focus on market stability and retail participation. "While the increase in Securities Transaction Tax is relatively modest, it does signal the direction of policy thinking — toward closer monitoring of speculative activity rather than abrupt intervention," noted Divam Sharma- Co Founder and Fund Manager at Green Portfolio PMS.

Sharma added that from the perspective of brokerage economics, the direct impact of the STT change appears limited and is unlikely to materially alter business models in the near term. The more important variable will be how much incremental tax revenue the government is ultimately able to generate from derivatives volumes, which will become clearer only after data over the coming quarters.

As per the January 2026 bulletin of SEBI, equity derivatives market witnessed a downward momentum in December 2025, with a 11 per cent and 8 per cent fall (M-o-M) in the average daily turnover (ADT) of equity futures and options premium respectively across NSE and BSE. However, on an annual comparison (as compared to December 2024), the ADT for options premium went up by 11 per cent, whereas ADT for equity futures declined by 5 per cent.

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