Budget 2026 Introduces Significant Tax Changes Affecting Trading and Corporate Payouts
Finance Minister Nirmala Sitharaman has unveiled a series of tax proposals in the Union Budget 2026 that are poised to make trading activities and certain corporate cash distribution mechanisms more expensive. The government's measures target buyback taxation, securities transaction tax (STT), and the minimum alternate tax (MAT) framework, signaling a concerted effort to reduce tax arbitrage opportunities and enhance overall tax compliance.
Revised Buyback Taxation to Curb Promoter Misuse
In her budget speech, Sitharaman emphasized that changes to buyback taxation are specifically designed to address the improper utilization of this route by company promoters while safeguarding the interests of minority shareholders. "Change in taxation of buyback was brought in to address the improper use of buyback route by promoters. In the interest of minority shareholders, I propose to tax buyback for all types of shareholders as Capital Gains," she stated.
Under the new framework, buybacks will be taxed as capital gains for all shareholders. However, promoters will face an additional buyback tax to discourage tax arbitrage practices. "To disincentivize misuse of tax arbitrage, promoters will pay an additional buyback tax. This will make effective tax 22 percent for corporate promoters. For non corporate promoters the effective tax will be 30 percent," Sitharaman explained. This adjustment aims to reduce incentives for routing corporate payouts through buyback structures, making them a less attractive option for tax optimization.
Increased Securities Transaction Tax on Derivatives
The budget also proposes a substantial hike in the securities transaction tax (STT) on derivatives trading, which is expected to raise transaction costs for market participants. "I propose to raise the STT on Futures to 0.05 percent from present 0.02 percent. STT on options premium and exercise of options are both proposed to be raised to 0.15 percent from the present rate of 0.1 percent and 0.125 percent respectively," the Finance Minister announced.
This revision will increase STT on futures to 0.05 percent from the current 0.02 percent, while STT on options premium and exercise of options will climb to 0.15 percent. The move is anticipated to impact derivatives traders significantly, particularly those engaged in high-frequency and short-term trading strategies, by making such transactions more costly.
Minimum Alternate Tax Reforms to Encourage New Regime Adoption
Alongside these changes, the government has outlined modifications to the minimum alternate tax (MAT) framework aimed at incentivizing companies to transition to the new corporate tax regime. "To encourage companies to shift to the new regime, set-off of brought forward MAT credit is proposed to be allowed to companies only in the new regime. Set-off using available MAT credit is proposed to be allowed to an extent of 1/4th of the tax liability in the new regime," Sitharaman said.
The government also proposed a fundamental restructuring of the MAT structure moving forward. "MAT is proposed to be made final tax. So, there will be no further accumulation from 1st April 2026. In line with this change, the rate of final tax is being reduced to 14 percent from the current MAT rate of 15 percent," she added.
Importantly, MAT credit accumulated up to March 31, 2026, will remain available for adjustment. "The brought forward MAT credit of taxpayers accumulated till 31st March 2026, will continue to be available to them for set-off as above," the Finance Minister clarified. These MAT reforms are part of a broader initiative to simplify corporate taxation, reduce dependence on exemptions and credit carry-forwards, and build upon earlier corporate tax reforms aimed at creating a more straightforward and predictable tax structure.
The comprehensive tax adjustments introduced in Budget 2026 reflect the government's sharper push to curb tax arbitrage, improve compliance, and streamline the taxation system. These measures are expected to have wide-ranging implications for trading activities, corporate financial strategies, and overall market dynamics in the coming fiscal year.
