Table of Contents
Introduction
The Indian trading community came across the news of a significant shift on February 1, 2026. While presenting the Union Budget 2026-27, Finance Minister Nirmala Sitharaman announced a substantial hike in the Securities Transaction Tax (STT). Since it was specifically targeting the Derivatives segment, this move sent shockwaves through Dalal Street. It is mainly because the Futures and Options (F&O) market has seen a never before surge in retail participation over the last couple of years.
For a trader, every paisa counts. Transaction costs which include brokerage, exchange charges, GST, and STT determine the “break-even” point of a trade. The latest STT changes in Union Budget 2026 mean that the cost of doing business in the stock market is going up. Whether you are a full-time professional scalper or a retail trader trying your luck with “Hero or Zero” expiry trades, these changes will directly impact your take-home profits.
In this comprehensive guide, we will break down exactly what has changed, how much more you will be paying per trade, and why the government decided to pull this lever now.
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Understanding Securities Transaction Tax (STT)
Before diving into the numbers, let’s quickly recap what STT is. Introduced in 2004, the Securities Transaction Tax is a direct tax levied on every purchase and sale of securities listed on recognized stock exchanges in India. These securities include equity shares, derivatives (Futures and Options), and units of equity-oriented mutual funds.
The beauty (and pain) of STT is that it is collected at source. There is absolutely no need for you to file it separately. The moment a trade is executed, the stock exchange collects it from your broker, and it is then passed on to the government. It was originally designed to prevent tax evasion on capital gains. However today it serves as a powerful tool for the government to regulate market behaviour.
Highlights of STT Changes in Union Budget 2026
1: What is a stock?
The primary focus of the STT changes in Union Budget 2026 is the derivatives segment. While long-term investors in the cash market (delivery) can breathe a sigh of relief, derivative traders are looking at a steep climb in costs.
1. Futures Trading Cost Hike
The STT on the sale of futures has been increased from 0.02% to 0.05%. While a 0.03% difference might sound minuscule to a layman, for a high-frequency trader, this represents a 150% increase in the tax outflow for every futures contract sold.
2. Options Premium STT
For those who trade in options, the tax is levied on the premium value. The budget has proposed to raise this rate from 0.1% to 0.15%. This is a 50% hike that will affect every single options seller in the country.
3. Exercised Options
When an option is exercised (typically on the day of expiry if it ends In-The-Money), the STT was previously 0.125%. This has now been harmonized to 0.15%, matching the premium STT rate.
4. No Change in Equity Delivery
Importantly, the government has left the STT on equity delivery (0.1% on both buy and sell) and intraday equity (0.025% on sell) unchanged. This clearly signals a preference for long-term investing over speculative derivative trading.
Comparison: Old vs. New STT Rates
To make it easier to understand, here is a side-by-side comparison of the tax rates before and after the STT changes in Union Budget 2026.
| Transaction Type | Segment | Old Rate | New Rate (Effective April 1, 2026) | % Change |
| Sale of Futures | Equity/Index | 0.02% | 0.05% | +150% |
| Sale of Options | Premium Value | 0.1% | 0.15% | +50% |
| Options Exercised | Intrinsic Value | 0.125% | 0.15% | +20% |
| Equity Delivery | Buy/Sell | 0.1% | 0.1% | No Change |
| Equity Intraday | Sale | 0.025% | 0.025% | No Change |
Deep Dive: Impact on Nifty Futures and Options
Let’s look at some real-world examples to see how the STT changes in Union Budget 2026 will affect your wallet.
Case 1: Trading Nifty Futures
Suppose you sell 1 lot of Nifty Futures.
- Nifty Level: 25,000
- Lot Size: 65
- Contract Value: ₹16,25,000 (25,000 * 65)
Before Budget 2026:
STT = 0.02% * 16,25,000 = ₹325
After Budget 2026:
STT = 0.05 * 16,25,000 = ₹812.50The Difference: You are now paying ₹487.50 extra per lot. If you are a professional trader doing 10 lots a day, that’s nearly ₹5,000 extra in taxes daily, which translates to over ₹1 lakh extra per month!
Case 2: Buying/Selling Nifty Options
Suppose you sell an option for a premium of ₹200.
- Lot Size: 65
- Total Premium Value: ₹13,000 (200 * 65)
Before Budget 2026:
STT = 0.1* 13,000 = ₹13
After Budget 2026:
STT = 0.15* 13,000 = ₹19.50While a ₹6.50 increase per lot seems small, consider a retail trader who “scalps” options multiple times a day. If you execute 50 trades in a day, you are losing an extra ₹325 daily just to this tax hike. Over a year, this adds up to ₹75,000+ in additional costs for a small-scale trader.
Why Did the Government Hike STT?
Many traders are asking: “Why us?” The rationale provided by the Finance Ministry and supported by SEBI data points to three main reasons:
1. Curbing Excessive Speculation
The volume of derivatives trading in India has reached astronomical levels—reportedly over 500 times India’s GDP. The government is worried that the market has become “over-leveraged” and speculative. By increasing the cost of trading, they hope to reduce the frequency of trades and cool down the “frenzy.”
2. Protecting Retail Investors
A recent SEBI study revealed a startling fact: 9 out of 10 individual traders in the F&O segment incur losses. The average loss per trader is over ₹1 lakh. The government views this as a social and financial risk. By making trading more expensive, they aim to discourage “casual” or “uninformed” retail participants from gambling their hard-earned savings in the derivatives market.
3. Boosting Revenue
While the primary motive is behavioural change, the revenue aspect cannot be ignored. With millions of trades happening daily, even a small percentage hike translates into thousands of crores for the exchequer. The government intends to use this revenue for infrastructure development (like the proposed ₹12.2 lakh crore Capex outlay) and other social schemes.
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Know moreCategories Most Affected by STT Changes
The STT changes in Union Budget 2026 do not affect everyone equally. Here is a look at who will feel the pinch the most:
- Scalpers and High-Frequency Traders (HFTs): These traders rely on very small price movements (sometimes just a few paise) and high volumes. A 150% jump in Futures STT could make many of their existing strategies completely unviable.
- Option Sellers (Writing): Since STT is paid by the seller of an option, those who write options to collect premiums will see their margins shrink.
- Arbitrageurs: Arbitrage funds and professional traders who exploit tiny price differences between the cash and futures market will see their returns drop. Experts estimate that arbitrage fund returns could see a drag of 0.25% to 0.35% annually.
- Retail “Expiring” Traders: Those who trade heavily on Nifty/Bank Nifty expiry days will find that the “cost to trade” has gone up significantly, requiring bigger price moves to just break even.
How to Deal With Higher Trading Costs?
Getting used to the new regime is essential for survival. Here are a few ways traders are planning to manage the STT changes in Union Budget 2026:
- Switching to “Zero Brokerage” Platforms: Since statutory taxes (STT, GST) are non-negotiable and increasing, traders are looking to cut down on the only cost they can control: brokerage. Moving to a flat-fee or zero-brokerage broker can help offset the tax hike.
- Reducing Trade Frequency: Instead of “over-trading” and taking 20 trades a day for 2-point gains, traders are shifting toward “quality over quantity” i.e. waiting for high-conviction setups that offer larger moves.
- Moving to the Cash Market: Since intraday and delivery STT rates haven’t changed, many retail traders may find it safer and more cost-effective to trade in the cash segment rather than using high leverage in F&O.
- Focusing on Positional Trading: By holding positions for a few days (swing trading) rather than squaring off every few minutes, the cumulative impact of STT as a percentage of your total profit decreases.
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Key Takeaways
- Futures STT Hike: Tax on sale of futures has jumped from 0.02% to 0.05%.
- Options STT Hike: Tax on sale of options premium has increased from 0.1% to 0.15%.
- Effective Date: All these changes will come into effect from April 1, 2026.
- Equity is Safe: There are no changes to STT for equity delivery or intraday cash trades.
- Focus on Quality: The government’s clear intent is to discourage speculative, high-frequency “gambling” and promote long-term wealth creation.
- Higher Break-even: Traders will now need the market to move further in their favour just to cover the increased transaction costs.
The STT changes in Union Budget 2026 represent a turning point for the Indian stock market. While it may feel like an additional burden, it is a clear nudge from the regulators to move toward more disciplined, research-backed trading and investing.
Parting Words
With more clarity on the STT changes in Union Budget 2026, are you interested in getting actively into stock trading? The first step would be to join a reputed finance education platform.
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Know moreFrequently Asked Questions
When will the new STT rates start?
The revised rates for Futures and Options announced in the Union Budget 2026 will be applicable on all trades executed on or after April 1, 2026.
Does the STT hike apply to buying shares for the long term?
No. The STT on equity delivery (buying and holding shares) remains unchanged at 0.1% for both purchase and sale transactions.
I am an intraday equity trader. Will my costs increase?
No. The STT for intraday trading in the cash segment remains at 0.025% on the sell-side. The hike only applies to the Derivatives (F&O) segment.
Is STT charged on both buying and selling of Options?
No. STT is generally charged only on the sale of option premiums. However, if an option is exercised, the buyer pays STT on the settlement price.
How much more will I pay for a ₹10 lakh Futures trade?
Previously, you paid ₹200 as STT (0.02%). From April 1, 2026, you will pay ₹500 (0.05%), which is an extra ₹300 per trade.
Why is the government targeting F&O traders?
To curb excessive speculation and protect retail investors, as SEBI data shows that 90% of retail F&O traders lose money.
Can I claim STT as a deduction in my Income Tax Return?
Yes, if you treat your trading as a business. STT paid can be claimed as a business expense against your trading income.
