Securities Transaction Tax Hike Takes Effect on April 1 Amid Rising Market Volatility

Government Announces Hike in Securities Transaction Tax on Futures and Options Trading

The Indian government has announced a hike in securities transaction tax (STT) on futures and options (F&O) trading, effective from April 1, 2026. The Finance Minister, Nirmal Sitharaman, introduced this change in Budget 2026 as part of the new financial year. The government aims to protect small investors from speculative losses rather than driving central revenues.

The hike in STT is aimed at curbing speculative trading and protecting the interests of the larger public. According to various studies, 90% of people tend to lose money in the F&O market. To address this issue, the government has increased STT on futures contracts to 0.05% from 0.02%. Additionally, STT on options premium and exercise of options will rise to 0.15% from the present rate of 0.1% and 0.125%, respectively.

The STT hike targets only the F&O segment, with no impact on equity delivery and intraday trading. The increase is largely concentrated in the derivatives segment, where trading volumes are driven by high churn and leveraged strategies.

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Experts predict that the F&O volumes, especially high-frequency and intraday trades, could see a dip in the short term due to rising costs and breakeven points. Harshal Dasani, Business Head at INVasset PMS, opined that the STT hike will lead to a moderation in intraday and F&O volumes as speculative activity becomes less attractive.

However, analysts do not see any long-term impact on the market. Santosh Meena, Head of Research at Swastika Investmart, opined that long-term volumes could stabilize as traders shift to lower-frequency strategies. Overall market sentiment sees mild near-term caution, but no broad equity sell-off.

The STT hike's timing could add further pressure on the stock market traders, reeling from the impact of the US-Iran war. The Indian stock market is already volatile due to geopolitical tensions and elevated crude prices. The STT hike is expected to further compress margins and force traders to become more selective and reduce excessive leverage.

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The ongoing US-Iran war has entered its fifth week and has already caused a 10% decline in the Nifty index in March. High volatility, FII outflows, rupee weakness, and surging oil prices are acting as headwinds. Against this backdrop, higher STT adds direct cost pressure exactly when margins are squeezed by geopolitical risk, likely accelerating the decline in retail F&O activity and compounding liquidity challenges for active traders.

Long-term investors, though, remain largely insulated, said experts. The number of unique individual investors trading in the equity derivatives (F&O) segment was 1.06 crore in FY25, which dropped to about 75.43 lakh in FY26 (up to December 30, 2025), according to a PTI report.

Alongside the government, Sebi has rolled out a series of measures to strengthen stability in the derivatives market, such as rationalising weekly contracts, increasing lot sizes, tightening margin norms, mandating upfront option premium collection, withdrawing calendar spread benefits on expiry day, and introducing intraday position limit monitoring.