STT Hiked on F&O Trading

Securities Transaction Tax (STT) on F&O trading has been increased in Budget 2026 only for derivatives, making futures and options trades costlier from 1 April 2026, while delivery equity investing remains unchanged.

What changed in STT on F&O?

• STT on equity futures goes up from 0.02% to 0.05% of the traded value, a 150% jump in the tax rate.

• STT on options premium rises from 0.10% to 0.15% of premium value, and STT on exercised options also moves to 0.15% of intrinsic value (from 0.125%).
• The hike applies from 1 April 2026, and the government has explicitly said that other equity STT (delivery, intraday, equity MFs) remains unchanged.

Why STT is increased on F&O ?

• Budget 2026 speech and post‑Budget briefing linked the move to curbing excessive speculation and “betting‑style” activity in derivatives, especially by uninformed retail traders.

• SEBI data showed that roughly 90–93% of individual F&O traders lose money, with many continuing even after repeated losses, which raised systemic‑risk and investor‑protection concerns.
• The hike is also part of a push to shore up STT collections after volumes dipped in 2025 due to tighter F&O rules and higher contract sizes.

Impact on Traders & Investors

• Retail F&O traders:

  • Per‑trade cost goes up modestly, but impact is meaningful for high‑churn intraday/weekly options strategies where STT applies even on loss‑making trades.
  • Many brokers and analysts expect a drop in F&O volumes, particularly in ultra‑short‑term options trading.
• Hedgers and institutions:
  • Large funds using futures/options for hedging will see higher friction costs; some may shift a part of activity offshore or to alternative products.
• Long‑term equity investors:
  • No change in STT on delivery trades, intraday cash segment, or equity mutual funds, so buy‑and‑hold equity investing is unaffected structurally.

Pros of the STT hike on F&O

• May discourage reckless, high‑frequency speculation in weekly options and deep OTM contracts that have been burning uninformed retail traders.

• Supports financial stability by nudging markets away from extremely leveraged, short‑term positions that can amplify volatility.
• Adds to tax revenues via a small increase in statutory rates on massive derivatives turnover, helping plug revenue shortfalls without touching long‑term equity.
• Keeps the signal clear: policy favours productive capital formation and longer‑term investing over pure speculative churn.

Risks and concerns of higher STT on F&O

• Raises transaction costs for genuine hedgers and professional traders, not just speculators, reducing market efficiency.

• Can compress F&O volumes, hitting brokers’ revenues and possibly pushing some liquidity into offshore markets like GIFT City or SGX.
• STT is charged on every trade, including losing trades, so strategies with tight edges may become unviable after the hike.
• Higher friction may discourage risk‑management via hedging, as some participants cut back on protective options due to cost.
• Frequent tinkering with F&O taxes and rules can create regulatory uncertainty, complicating long‑term strategy design for active traders and institutions.

FAQs

1. From when will the higher STT on F&O apply?

• The revised STT rates on futures and options will apply from April 1, 2026, as part of the Finance Bill linked to Budget 2026.

2. What are the new STT rates on futures and options?

• Futures: STT rises from 0.02% to 0.05% of turnover. Options: STT on premium goes from 0.10% to 0.15%, and STT on exercise rises to 0.15% of intrinsic value.

3. Does the STT hike affect delivery‑based equity investing?

• No. The government has specifically said only derivatives STT is being changed; STT on delivery, intraday cash and equity mutual funds is unchanged.

4. How much will my trading cost increase as an options trader?

• For low‑frequency positional traders, the absolute impact per trade is small; for high‑churn intraday weekly options, the cumulative cost can meaningfully reduce strategy profitability because STT is levied on every turnover.

5. What should F&O traders do after the STT hike?

• Many experts suggest reducing over‑trading, focusing on well‑defined strategies with edge, using position sizing and risk limits, and evaluating if some trades still make sense after including higher STT and brokerage.