Budget 2026 Introduces STT Hike on Futures and Options Trading
The Income Tax Department issued a crucial clarification on Sunday regarding the new Securities Transaction Tax (STT) rules on futures and options (F&O) trading, which were announced by Finance Minister Nirmala Sitharaman during her presentation of the Budget 2026. This marks her ninth consecutive budget presentation, delivered on February 1, 2026, where she proposed significant changes to curb speculative activities in the derivatives market.
Finance Minister's Proposal and Rationale Behind the STT Increase
During her Budget speech, Finance Minister Nirmala Sitharaman stated, "I propose to raise the STT on Futures to 0.05% from present 0.02%. Options premium and exercise of options are both proposed to be raised to 0.15% from the present rate of 0.1% and 0.125% respectively." This move is part of a broader strategy to address the massive volume of transactions in the F&O segment, which the Income Tax Department highlighted as being 500 times the Indian GDP, currently standing at ₹300 lakh crore.
The department emphasized that the total volume for options and futures exceeds ₹1.5 lakh lakh crore, justifying the increase in rates to discourage purely speculative activity. In a post-Budget press conference, Revenue Secretary Arvind Shrivastava reinforced this point, explaining that the STT hike is "intended to discourage speculative tendencies and handle systemic risk in the derivatives market."
Detailed Clarification from the Income Tax Department
Shortly after the Finance Minister's announcement, the Income Tax Department provided a detailed explanation to clarify any misconceptions. They confirmed that the STT hike applies exclusively to options and futures transactions and does not affect other market segments. The revised rates are as follows:
- STT on futures contracts will increase to 0.05% from the current 0.02%.
- STT on options premium and exercise of options will rise to 0.15% from the existing rates of 0.1% and 0.125%, respectively.
The department also released a list of Frequently Asked Questions (FAQs) to help traders and investors understand the implications of these changes.
Key FAQs on the STT Hike for F&O Transactions
- What is the current rate of STT on futures in securities? Under the existing provisions, STT is levied on transactions through recognised stock exchanges. Current rates for options are 0.1% of the option premium on sale and 0.125% of the intrinsic price when exercised.
- What are the changes on STT for derivatives transactions? Budget 2026 has revised STT rates for specified derivatives transactions on recognised stock exchanges, affecting the sale of options and futures in securities.
- What are the revised STT rates on F&O transactions? As mentioned, futures will be taxed at 0.05%, and options at 0.15% for both premium and exercise.
- When will the new STT rules come into effect? The revised STT rates will take effect from April 1, 2026, applying to derivatives transactions entered into on or after that date.
This clarification aims to ensure transparency and help market participants adjust to the new regulatory environment, which is designed to promote more stable and less speculative trading practices in India's financial markets.
