New Rates of STT for Options & Futures Trading Starting From April 26

Overview

The Union Budget 2026-27 has introduced a significant change in India's capital market taxation by raising the Securities Transaction Tax (STT) on equity derivatives, namely Futures and Options (F&O). The revised STT rates will come into effect from April 2026 and are aimed at curbing excessive speculative trading in the derivatives segment.

The move comes amid growing regulatory concern over the explosive growth of F&O trading volumes, which, according to official data, have reached levels far exceeding the size of the real economy.

These revised STT rates, effective from April 2026, are expected to significantly impact active traders, especially those engaged in high-frequency and short-term derivative trading.

The move has sparked widespread discussion across the stock market ecosystem, as higher STT directly increases trading costs and affects profitability. 

Securities Transaction Tax

Securities Transaction Tax (STT) is a direct tax levied on the purchase or sale of securities traded on recognised stock exchanges in India. It is charged at the time of transaction execution and collected by the exchange on behalf of the government.

STT applies to:

• Equity delivery and intraday trades
• Equity Futures
• Equity Options

For derivatives, STT is generally charged on the sell side or on the premium/exercise value, depending on the instrument.

Changes in Budget 2026

In Budget 2026, the government announced a hike in STT rates for equity derivatives, namely Futures and Options, while keeping STT on equity delivery trades unchanged.

Why Did the Government Increase STT on F&O Trading?

The increase in STT is aimed at achieving multiple policy objectives:

Government's Rationale: Discourage Speculation

According to income tax department clarifications cited by Mint, the rationale behind the hike is not just revenue generation but also tempering excessive speculative activity:

• F&O turnover dwarfing GDP: The total volume in the F&O segment was described as “500 times the size of India's GDP”, highlighting the enormous churn in derivatives compared to the underlying economy.
• Objective to rein in speculative trades: The department noted that higher STT is intended to discourage purely speculative and volatile derivatives trading, rather than affect broader investment activities

India has seen explosive growth in retail participation in derivatives, especially weekly options. Higher STT discourages excessive speculative trades.

Reduce Market Volatility

High-frequency trading and rapid churn in derivatives contribute to sharp intraday volatility. Increased transaction costs may slow down over-trading.

Improve Tax Revenue

Derivatives account for a massive share of exchange turnover. Even a small increase in STT translates into significant additional revenue.

Promote Long-Term Investing

By increasing short-term trading costs, the policy indirectly nudges investors towards long-term equity investing.

Who Will Be Most Affected?

The STT hike does not impact all market participants equally.

Most Impacted:

• Active Options traders
• Intraday & scalping traders
• Algorithmic and high-frequency traders
• Arbitrage strategies with thin margins

Less Impacted:

• Long-term equity investors
• Delivery-based stock traders
• Mutual fund investors

STT on equity delivery trades remains unchanged, offering relief to long-term investors.

How Will the New STT Impact Trading Costs?

Higher STT increases:

• Cost per trade
• Break-even point
• Capital required for the same strategy

For options traders, frequent entry and exit strategies will now need higher price movement just to cover taxes and charges.

This could lead to:

• Lower trading volumes
• Reduced speculative trades
• Strategy re-engineering by professional traders

Market Reaction to STT Hike

The announcement of higher STT on F&O trading led to:

• Negative sentiment in the equity markets
• Sharp fall in broker and exchange-related stocks
• Concerns over declining derivatives volumes

Derivatives-linked stocks fell sharply: Brokers and exchange-related stocks such as those in the discount broking space experienced significant declines some by 5% or more as higher trading costs threatened their revenue streams.

Major indices sold off: Sensex and Nifty briefly fell as traders digested the news, responding to fears of reduced trading volumes and profitability.

Volatility spiked immediately after the announcement, reflecting broader risk repricing in markets.

Does This Affect Capital Gains Tax?

No. STT is completely separate from capital gains tax.

• STT is charged on the transaction value
• Capital Gains Tax is charged on profits earned

The STT hike does not change:

• Short-term capital gains tax
• Long-term capital gains tax

Why This Matters: Impact Beyond Traders

For brokers:,who earn a large portion of their income from F&O broking fees stand to lose more than full-service brokers or exchanges with diversified revenue models.

• Some brokers saw derivatives brokerage contribute as much as 75%-85% of revenue prior to the STT change.
• Lower derivatives volumes could reduce overall profits and valuations for several listed brokers.

For Trading Volumes

Analysts warn that the higher STT may deter high-frequency and short-term derivative trades, potentially reducing overall trading volumes across F&O segment

FAQs

Why has STT been changed in the Union Budget 2026-27?

In Budget 2026-27, the government increased STT rates on derivatives (Futures & Options) to discourage excessive speculative trading and moderate high-frequency activities that can increase volatility in equity markets.

When will the new STT rules apply?

The revised STT rates on Futures & Options will apply from April 1, 2026 (i.e., for trades and contracts entered on or after this date).

How does this STT hike affect traders' costs?

Higher STT means:

• Increased trading cost per lot/transaction
• Higher breakeven point for F&O strategies
• Lower profitability for high-frequency and short-term traders

For example, relative STT costs per Rs 5 lakh futures turnover rise noticeably under the new regime.

Are long-term investors affected?

No. Long-term equity investors who primarily trade delivery shares or mutual fund units are generally unaffected, since STT on those trades is unchanged.

Does this change apply to all exchanges and derivatives?

Yes — the new STT applies to recognised stock exchanges in India and only to equity derivatives (F&O). Commodities, currencies, and other segments may remain under different tax regimes.