STT hike in F&O trade to curb speculative trade, protect small investors
New Delhi, Feb 1:Finance Minister Nirmala Sitharaman on Sunday announced an increase in the Securities Transaction Tax (STT) on Futures and Options trade with a view to discouraging small investors from speculative trading in derivatives, which led to a sharp decline in the stock market.
The government expects to collect Rs 7 3,700 crore through STT in FY27. It is likely to mop up Rs 63,670 crore in the current fiscal, lower than the previous estimate of Rs 78,000 crore.
In her Budget speech for 2026-27, Sitharaman said the STT on futures contracts will be raised to 0.05 per cent from 0.02 per cent.
"STT on options premium and exercise of options are both proposed to be raised to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, respectively," she said.
Following the announcement, benchmark stock indices Sensex and Nifty dived sharply by nearly 2 per cent.
Addressing a post-budget conference, Sitharaman said the government is not against derivative trade, but wants small investors, who are facing huge losses, to stay away from the speculative F&O market.
"This nominal increase is purely aimed at speculation, only to deter them, to discourage them. We are not against it (F&O trade), but small investors are facing losses, so how can we be quiet, so it (STT hike on F&O) is to deter such investments," Sitharaman said.
The hike in STT is aimed squarely at high-volume derivative trading, rather than the cash equity market, and is expected to increase transaction costs for active and short-term trading strategies.
Market experts believe that the move could help discourage excessive speculative activity and promote a more balanced market structure. However, some caution that it may weigh on foreign portfolio investor (FPI) participation in the near term.
Ashishkumar Chauhan, MD & CEO, NSE, said that the budget "deepens financial markets through calibrated measures, higher STT on derivatives to curb excess speculation".
