STT hike after Budget 2026: What is Securities Transaction Tax & what does it mean for F&O traders and investors

Securities Transaction Tax (STT) on derivatives will rise from April 1, 2026, after the Finance minister Sithraman in her 9th budget speech proposed higher rates on futures and options trading as part of Budget 2026 changes to the Finance (No. 2) Act, 2004.

Finance Minister Nirmala Sitharaman announced the move while presenting the Budget, saying: “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 change comes through Clause 143 of the Finance Bill, which amends Section 98 of IT Act, which govern STT rates on derivatives transactions. The revised rates will apply from the tax year 2026-27 onwards.

Its is important to note that only derivatives STT rates have been revised from April 1, 2026, while equity delivery and equity mutual fund STT rates remain unchanged

What is Securities Transaction Tax (STT)

STT is a transaction-based tax levied on the purchase or sale of specified securities traded on recognised stock exchanges.

It is not based on profit or income. Instead, it is charged at the time of executing the transaction itself. The tax is collected automatically by the exchange or intermediary and deposited with the government. "Taxable securities transaction" means a transaction of—

How the law defines taxable securities transactions

Under the statutory framework, a taxable securities transaction includes:

• Purchase or sale of equity shares
• Trading in derivatives such as futures and options
• Sale of equity-oriented mutual fund units
• Transactions involving business trust units (REITs, InvITs)
• Certain IPO and offer-for-sale transactions
• Certain ULIP-linked equity fund redemptions

The law also defines key derivative concepts such as option premium, strike price and intrinsic value, forming the legal base for STT levy.

Clause 143 of Finance bill 2026 : What exactly is changing

Clause 143 increases STT rates on three derivatives segments:



These revised rates apply from April 1, 2026, and will impact trades executed in FY 2026-27 and beyond.

Updated STT rates table (Post Budget 2026 revisions)

The table highlights in bold only the segments where rate changes apply for clarity, rest are unchanged.



Note: Only derivatives STT rates change. Equity delivery and mutual fund STT remain unchanged.

Who actually pays STT

STT liability depends on the transaction type:

• Equity purchase -- Buyer pays
• Equity sale-- Seller pays
• Options premium --Seller pays
• Options exercise--Buyer pays
• Futures-- Seller pays

The tax is deducted automatically by the broker or exchange, so traders do not need to calculate or pay it separately.

Key legal definitions behind STT levy

The STT framework relies on statutory definitions drawn from multiple financial laws.

Important terms defined in law

• Derivative – As defined under the Securities Contracts (Regulation) Act
• Option in securities – A contract giving the right (not obligation) to buy or sell
• Option premium – Price paid by buyer to option seller
• Strike price – Price at which option can be exercised
• Recognised stock exchange – Exchange recognised under securities law
• Business trust – Includes REITs and InvITs
• Equity oriented fund – Funds with prescribed equity exposure under tax law

What counts as taxable securities transaction legally

The law defines taxable securities transactions to include:

• Exchange-traded equity share purchase or sale
• Derivatives trading on recognised exchanges
• Sale of equity mutual fund units
• ULIP equity fund redemption (post Feb 2021 policies)
• IPO and initial offer OFS transactions in specific cases

Why the government is raising STT on derivatives

While the Budget speech did not elaborate extensively, the finance ministry in post budget press conference highlighted following points:

• Increasing high-volume derivatives trading
• Moderating speculative trading activity
• Aligning derivatives taxation with GDP size

"This hike was signalled by the Government as part of broader tax and market reforms aimed at discouraging excessive speculative activity in the derivatives segment, addressing systemic risk concerns arising from high turnover and leveraged positions in F&O markets, and moderating short-term trading behaviour. The Revenue Secretary explained that the measure is intended to curb speculative tendencies and help manage risk in the derivatives market, rather than as a pure revenue-generating exercise." said CA Chintan Ghelani, Partner – Direct Tax, N. A. Shah Associates LLP.

What this means for traders

For derivatives traders:

• Trading costs will increase marginally
• High-frequency traders will see cumulative cost impact
• Delivery equity investors remain unaffected

For long-term investors who primarily buy and hold equities, there is no change in STT cost.

Bottom line

From April 1, 2026, STT will become costlier for futures and options traders due to revised statutory rates under Clause 143 of the Finance Bill. However, the core STT structure, equity transaction taxes and mutual fund STT remain unchanged.