STT Hike in F&O: What Market Participants Need to Know

No image 5paisa Capital Ltd - 2 min read

Last Updated: 2nd February 2026 - 12:32 pm

Summary:

Finance Minister Nirmala Sitharaman announced an increase in securities transaction tax on derivatives in the Union Budget 2026-27. STT on futures contracts will rise to 0.05% from 0.02%, while STT on options premium and exercise will increase to 0.15% from 0.1% and 0.125% respectively. Benchmark indices fell nearly 2% on Budget day following the announcement.

Join 5paisa and stay updated with Market News

The hike in securities transaction tax (STT) in the futures and options (F&O) segment led to a sharp decline in stock markets during the special Budget trading session on Sunday, February 1.

Benchmark indices Sensex and Nifty 50 fell nearly 2% on Sunday, marking their worst decline in six years on Budget day.

Investors' wealth eroded by ₹9.40 lakh crore on Sunday. Market capitalisation of BSE-listed companies fell by ₹9,40,581.75 crore to ₹4,50,61,658.60 crore ($4.90 trillion) in a single day.

STT hike details

Finance Minister Nirmala Sitharaman proposed an increase in STT on derivatives in her Budget speech for 2026-27.

STT on futures contracts will be raised to 0.05% from 0.02%. STT on options premium will increase to 0.15% from 0.1%. STT on exercise of options will rise to 0.15% from 0.125%.

What is STT in the F&O segment

Securities transaction tax is a tax charged by the government on trades executed in the stock market. In the F&O segment, STT is charged only when a trader sells, not when they buy.
The tax directly reduces trading profits or increases losses. High-frequency traders, option sellers, and arbitrage strategies are most affected as they trade frequently.

Tax Applicability

Sitharaman said the government is not against derivative trading but wants small investors facing large losses to stay away from the speculative F&O market.

She said the nominal increase is aimed purely at speculation and is intended to deter and discourage such activity. The government cannot remain silent when small investors are facing losses, she added.

The hike in STT is aimed at high-volume derivative trading rather than the cash equity market. It is expected to increase transaction costs for active and short-term trading strategies.

FREE Trading & Demat Account
Open FREE Demat Account with endless opportunities.
  • Flat ₹20 Brokerage
  • Next-gen Trading
  • Advanced Charting
  • Actionable Ideas
+91
''
By proceeding, you agree to our T&Cs*
Mobile No. belongs to
OR
hero_form

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.

Open Free Demat Account

Be a part of 5paisa community - The first listed discount broker of India.

+91

By proceeding, you agree to all T&C*

footer_form