The Income Tax Department explained that the Union government’s decision to hike the securities transaction tax on futures and options from 0.02% to 0.05% will “curb purely speculative activity in options and futures”.
“STT has been raised only on options and futures. The rate for futures now is 0.05 and for options is 0.15. Total volume of transactions in options and futures is more than 500 times of Indian GDP. In Rupee terms, our GDP is 300 lakh crore rupees. Volume for options and futures is more than 1.5 lakh lakh crore rupees. Therefore there is justification for an increase in rates to curb purely speculative activity in options and futures,” it said in a post on X on Sunday, adding that other STT rates remain the same.
Finance Minister Nirmala Sitharaman announced higher STT rates for derivatives in her Budget 2026–27 speech, positioning the move as a “course correction” for the futures-and-options segment and a revenue measure.
The move has garnered mixed reactions across investors. Market veteran Shankar Sharma said he welcomed the Budget mainly because the government raised the STT on derivatives, a move he said could curb futures-and-options activity among retail traders. “I love this Budget for ONE major reason: hiking of STT on derivatives,” Sharma said in a reaction shared after the speech. He said derivatives trading had harmed young participants and said the effect would last for years.
Sharma framed the STT increase as the Budget’s main outcome for markets, and he treated it as an attempt to limit speculative turnover in derivatives. He said the derivatives segment had drawn in young participants and described it as harmful. “Derivatives are a poison x cocaine, eating away at the roots of our youth,” he said, calling the impact a long-lasting one.
What is STT?
STT is a tax levied by the government on the purchase or sale of securities traded on recognised stock exchanges in India. Introduced in 2004, STT applies to equity shares, equity derivatives such as futures and options, and equity-oriented mutual funds. The tax is collected at the time of the transaction itself, making it a simple and transparent source of revenue for the government.
In the case of derivatives, STT is charged on the contract value for futures and on the option premium or exercise value for options. Any increase in STT directly raises trading costs, especially for high-frequency and short-term traders, which is why changes in STT tend to have an immediate impact on market volumes and sentiment.
ALSO READ: STT Hike Explained: What Brokerages Say And Why Markets Reacted Sharply
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