In a major move to curb excessive speculation in the derivatives market, Finance Minister Nirmala Sitharaman announced a significant hike in the Securities Transaction Tax (STT) during the Union Budget 2026 presentation on February 1, 2026.
The hike, which targets the Futures and Options (F&O) segment, triggered an immediate sell-off in the stock market, with benchmark indices Sensex and Nifty 50 plunging over 1.5% as the budget speech concluded.
1. New STT Rates (Effective 2026-27)
The revised rates represent a steep jump in transaction costs for derivatives traders, aimed at moderating high-frequency speculative activity.
| Segment | Old Rate | New Rate (Budget 2026) | Impact |
| Futures (Sale) | 0.02% | 0.05% | 150% Increase |
| Options Premium (Sale) | 0.1% | 0.15% | 50% Increase |
| Exercise of Options | 0.125% | 0.15% | 20% Increase |
| Commodity Futures | 0.02% | 0.05% | 150% Increase |
2. Why the Government Hiked STT
The hike is part of a broader regulatory push by the Finance Ministry and SEBI to protect retail investors from heavy losses in the derivatives segment.
- Discouraging F&O Obsession: SEBI data has consistently shown that 9 out of 10 individual traders lose money in F&O. The higher tax is intended to act as a deterrent for small-scale speculators.
- Volume Moderation: Market analysts, including those from Kotak Securities, noted that the intent appears to be volume moderation rather than revenue maximization, as higher costs may lead to lower overall derivative volumes.
- Ending Tax Arbitrage: Along with the STT hike, the FM proposed taxing share buybacks as Capital Gains for all shareholders to remove tax arbitrage opportunities used by promoters.
3. Market Reaction: “Budget Day Bloodbath”
The announcement caused an immediate “flash crash” in the stock market during the special Sunday trading session:
- Benchmark Indices: The Sensex tumbled over 2,000 points intraday before recovering slightly to settle around 81,300. The Nifty 50 slipped below the critical 25,000 mark.
- Brokerage Stocks Crash: Shares of top brokerages and exchanges—including BSE, Angel One, and Groww—plunged by 10% to 11%, as investors feared the tax hike would hurt their primary revenue driver: trading volumes.
- Volatility Surge: The India VIX (Fear Index) jumped over 14%, reflecting heightened anxiety among market participants.
4. Strategic Context for Investors
- Foreign Participation: To balance the STT hike, the government proposed raising the individual investment limit for Persons Resident Outside India (PROIs) from 5% to 10% to encourage more stable FPI inflows.
- New Tax Era: These changes arrive just months before the new Income Tax Act 2025 is set to simplify the entire tax code starting April 1, 2026.
Conclusion: A Costly Shift for Traders
Budget 2026 has made it clear that the government views the current level of retail participation in F&O as a systemic risk. While the hike on futures and options is a blow to active traders, the focus on long-term capital gains and FPI limits suggests a push toward a more stable, delivery-based investment culture in India.
