STT Hike On F&O Meant To Curb Speculation, Protect Retail Investors: Sitharaman
A day after the Union Budget announcement, Finance Minister Nirmala Sitharaman on Monday said the hike in Securities Transaction Tax (STT) on futures and options (F&O) trading is intended to discourage speculative activity and protect retail investors from mounting losses.
Speaking to reporters, Sitharaman said she had received calls from parents expressing concern that their children were losing money in derivatives trading. “F&O is a highly speculative market,” she said, adding that the STT increase was a deliberate step to deter excessive speculation.
Citing a study by the Securities and Exchange Board of India (SEBI), the Finance Minister said nearly 90 per cent of participants in the F&O segment end up losing money. “People are losing money due to high speculation in derivatives trading,” she said.
Earlier SEBI studies have shown that about 93 per cent of individual traders in the equity futures and options segment incur losses, and more than 75 per cent of loss-making traders continue to trade despite repeated setbacks.
Futures and options are financial derivatives that allow traders to take positions on price movements of underlying assets such as stocks, indices, commodities, or currencies without owning them. While derivatives serve hedging and price discovery functions, high leverage makes them particularly risky for retail participants.
Securities Transaction Tax is a levy imposed on every buy and sell transaction in the stock market, including equities and derivatives. While the tax rate appears small, it directly raises trading costs, especially for frequent and high-turnover strategies such as intraday and algorithmic trading.
Under the Union Budget 2026–27, the government proposed raising STT on futures contracts to 0.05 per cent from 0.02 per cent. STT on options premium and on the exercise of options has been proposed to be increased to 0.15 per cent from the current 0.1 per cent and 0.125 per cent, respectively. Other STT rates across asset classes remain unchanged.
The government said the total volume of options and futures trading in India is more than 500 times the country’s GDP, justifying the need for a rate adjustment to curb purely speculative activity.
Chief Economic Advisor V. Anantha Nageswaran said the objective of the STT hike is not revenue generation but the protection of household savings. “The purpose is to ensure that hard-earned savings are deployed in ways that help households build wealth. SEBI has repeatedly highlighted how retail investors lose money in F&O,” he told journalists.
Revenue Secretary Arvind Shrivastava also said the volumes in the derivatives market indicate heavy speculation when compared to the size of the underlying securities market and the country’s GDP. “This results in large losses for retail investors. The government’s intention is to discourage speculation and address systemic risk in the derivatives market,” he said, adding that the revised STT rates remain modest relative to trading volumes.
The hike in STT led to sharp selling in brokerage-related stocks on Sunday after the Budget presentation, as higher transaction costs are expected to impact trading volumes in the derivatives segment. However, equity markets recovered partially on Monday, with late buying in heavyweight stocks helping indices rebound from the Budget-day sell-off.
In her Budget speech, Sitharaman described the STT changes as a “course correction” in the derivatives market, noting that while the primary objective is to rein in speculative excesses, the measure is also expected to generate additional revenue for the government.
