The Finance Bill, 2026, proposes a hike in the Securities Transaction Tax (STT) on futures and options (F&O) trades to address the growing volume of speculative activity in the derivatives market. While the basic framework of STT remains unchanged, the Government has proposed a calibrated revision to rates to better align them with prevailing market conditions.
Introduced under the Finance (No. 2) Act, 2004, STT was conceived as a simplified mechanism to tax securities transactions executed on recognised stock exchanges. The levy is collected and deposited by intermediaries such as stock exchanges, mutual funds, insurance companies or lead merchant bankers, depending on the nature of the transaction, thereby reducing the compliance burden on individual investors. Over the years, STT has become an integral part of India’s securities market framework, contributing to greater transparency and traceability in exchange-traded transactions.
STT rates have been revised from time to time to reflect changes in market structure and trading behaviour.
In recent years, the derivatives segment, particularly futures and options, has seen a sharp rise in trading volume, driven by increased retail participation. With speculative trading in F&O expanding at a much faster pace than in the cash market, the Government has stated that a modest increase in STT is intended to discourage excessive speculation without affecting the use of derivatives for genuine hedging purposes.
Under the Finance Bill, 2026, three key changes are proposed:
The increase in STT on futures and options is a targeted measure to address the sharp rise in speculative trading in the derivatives market. While the structure of STT remains unchanged, the higher rates will increase transaction costs, particularly for high-frequency and short-term traders. At the same time, the revision is calibrated and is unlikely to affect derivatives used for genuine hedging materially.
The proposed amendments will come into force from 1 April 2026 and will apply only to futures and options transactions undertaken on or after that date.
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