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Every Union Budget brings with it subtle shifts that quietly reshape investor behaviour. Budget 2026 is no exception. The presentation of the Union Budget 2026 has introduced a significant shift in the cost of doing business in trading.
One of the most discussed changes relates to Securities Transaction Tax (STT), which directly affects how much traders and investors pay while buying and selling securities. While the overall structure of capital market taxation remains largely intact, the revised STT rates, especially for derivatives, have important implications for market participants.
Key Takeaways
STT applies to all exchange-traded securities, regardless of profit or loss
In Budget 2026, the government raised STT primarily on F&O transactions, which has increased the overall cost of trading in derivatives
STT on futures rose from 0.02% to 0.05%, significantly impacting high-volume traders
Options traders now pay higher STT, whether trading premiums or upon exercise
Long-term equity investors remain largely unaffected, as delivery-based rates are unchanged
The F&O segment is the most impacted by these shifts, as traders now face a significant rise in transaction expenses. For high-frequency traders and short-term market players, this change could alter strategies, risk management approaches, and overall profitability. Meanwhile, long-term equity investors remain largely unaffected, reinforcing the government’s continued support for stable, long-term investment behaviour.
This blog will break down what STT actually is, what changed in Budget 2026 and how these changes impact different types of market participants.
What is Securities Transaction Tax?
Securities Transaction Tax (STT) is a direct tax levied by the Government of India on transactions executed on recognised stock exchanges.
Introduced in 2004, STT was designed to:
Ensure the capital market contributes to government revenue
Simplify the taxation of securities transactions
Reduce tax evasion in trading activities
STT applies to:
Equity shares (delivery and intraday trades)
Equity derivatives (futures and options)
Equity-oriented mutual funds
The stock exchange deducts this tax automatically when the trade takes place, so investors are not required to compute or pay it separately. Unlike the capital gains tax, STT is payable even if the trader incurs a loss, making it a transaction-based tax rather than a profit-based one.
Who Really Pays the Securities Transaction Tax (STT)?
Understanding who bears the cost of STT is essential for assessing the actual impact of the changes introduced in Budget 2026. Although STT is collected automatically through stock exchanges, the burden can fall on buyers, sellers, or both, depending on the type of transaction.
Equity Delivery (Long-Term Investing):
STT is charged to both parties in the transaction, the buyer as well as the seller, at 0.1%
When you buy shares, you pay STT, and when you sell them, you pay it again
Delivery-based investors remain largely unaffected by Budget 2026, as these rates were not changed
Equity Intraday (Non-Delivery Trades):
Only the seller pays STT
This makes intraday trading a little cheaper than delivery trades, but trading a lot still costs more
Futures Trading:
STT is paid only by the seller
After Budget 2026, the rate rose from 0.02% to 0.05%, increasing costs for high-volume traders and amplifying the F&O tax impact
Options Trading:
When an option is sold based on its premium, the seller is liable to pay 0.15% STT
If the option gets exercised, this tax at the same rate of 0.15% is paid by the buyer instead
This is a major area impacted by STT changes in 2026, given the large retail participation in options trading
STT Structure Before Budget 2026
Before Budget 2026, the Securities Transaction Tax (STT) distinguished between delivery-based equity trades and derivatives like futures and options. The structure favoured long-term investors with stable rates while placing a higher burden on speculative trading. In the F&O segment, STT primarily applied to sellers, and the tax rate varied depending on whether an option was exercised or not.
The table below shows the STT rates that were applicable before Budget 2026, highlighting that different instruments in the F&O segment were taxed differently
Instrument
Transaction Type
STT (Before Buget 2026)
Options
Sale of option (premium)
0.1%
Options
Sale of option (exercised)
0.125%
Futures
Sale of Futures
0.02%
Key Features of The Pre-2026 STT Structure
These features highlight how the previous framework aimed to support market liquidity and trading activity while keeping costs predictable for most participants.
In most F&O transactions, STT was applied only to the selling side rather than being levied on both buyer and seller
Options trading had STT on the premium value, making frequent trading relatively cost-effective
Futures trading had one of the lowest STT rates, encouraging higher trading volumes in this segment
The structure was considered more trader-friendly, especially for short-term and intraday strategies
However, with the rapid growth in derivatives trading in recent years, policymakers felt the need to reassess this framework, leading to the changes introduced in Budget 2026.
Did You Know?
STT was introduced in 2004 to replace the Long Term Capital Gains tax, though ironically, both taxes now co-exist in the current fiscal framework
Source: ET
Revised STT Rates After Budget 2026
The revised STT rates in Budget 2026 reflect a deliberate policy shift rather than a routine tax tweak. By increasing STT primarily on Futures and Options (F&O), the government intends to discourage aggressive short-term trading and high-frequency market activity, which often contribute to sharper price swings and market volatility.
The table below highlights that Budget 2026 increased STT mainly for F&O trades, making derivatives trading more expensive while keeping equity delivery rates stable. This move balances market stability with continued support for genuine wealth creation through long-term investing.
Instrument
Transaction Type
Revised STT
Change %
Options
Sale of option (premium)
0.15%
50%
Options
Sale of option (exercised)
0.15%
20%
Futures
Sale of Futures
0.05%
150%
Impact on F&O Traders and Investors
The revised Securities Transaction Tax (STT) in Budget 2026 has created a measurable shift in trading economics, particularly in the derivatives market. While long-term investors remain largely unaffected, the F&O tax impact is evident for active traders who rely on frequent transactions. These changes require market participants to reassess their strategies, costs, and risk management approach.
Impact on Active F&O Traders- The increase in STT has raised overall trading costs, making profitability more challenging for high-frequency traders. Since STT applies to every transaction regardless of profit or loss, even small rate hikes accumulate significantly over multiple trades. This pushes traders to be more selective, reducing impulsive trading and encouraging a focus on higher-quality setups rather than volume-based strategies. Many traders may shift from ultra-short-term trades to slightly longer holding periods to justify the higher costs.
Impact on Futures Traders- The rise in STT from 0.02% to 0.05% has materially increased the cost of futures trading. This particularly affects scalpers and intraday traders who execute multiple positions daily. As a result, break-even levels have increased, requiring larger price movements to achieve the same profitability. Traders may need to adjust position sizing, risk limits, and entry-exit strategies to stay viable in this new tax environment.
Impact on Options Traders- Options traders are among the most affected due to higher STT on both premium-based trades and exercised options. This has increased friction costs, especially for option sellers who depend on high turnover and small margins. Retail traders who frequently trade weekly options may feel the impact more sharply, potentially leading to reduced participation or a shift toward cash or futures markets.
Impact on Long-Term Equity Investors- For long-term investors, the effect of STT changes in 2026 is minimal since STT on delivery-based equity trades remains unchanged. Buy-and-hold investors and SIP participants continue to benefit from a stable tax structure, reinforcing the government’s intent to promote long-term wealth creation rather than short-term speculation.
Overall Market Implication- The revised STT framework appears aimed at moderating excessive speculative trading while preserving investor confidence. While traders face higher costs, the broader market may benefit from improved stability, lower volatility, and more disciplined participation over time.
Wrapping Up
Budget 2026’s STT changes signal a shift toward more disciplined market participation rather than unrestricted speculation. Long-term investors continue to profit from stability and predictability, although aggressive F&O traders now have to work in a more expensive market.
Ultimately, the revised Securities Transaction Tax framework encourages thoughtful trading, better risk management, and a healthier, more resilient capital market ecosystem.
Glossary
Securities Transaction Tax (STT): A direct tax levied on the value of securities transacted on recognised exchanges
F&O: Derivative contracts where the value is derived from an underlying asset, used for hedging or speculation
Delivery Trade: Buying shares to hold in your Demat account rather than selling the same day
Market Volatility: The degree of price fluctuations in the stock market
Intraday Trade: Buying and selling a security on the same trading day
FAQs
In most Futures and Options (F&O) transactions, the seller bears the Securities Transaction Tax. In contrast, for delivery-based equity trades, both parties, the buyer as well as the seller, are required to pay STT.
Small traders often operate with thin margins and high leverage. The 150% hike in futures STT and the 50% hike in options premium STT mean that a larger portion of their capital is drained by taxes on every trade. This increases the difficulty of recovering from losses and staying profitable in the long run.
No, STT is a transaction-based tax, not an income-based tax. It is payable on the turnover or premium value of every trade, regardless of whether that specific trade (or your overall year) resulted in a profit or a loss.
As per the Union Budget 2026, the STT on the sale of futures has been increased from 0.02% to 0.05%. This is the most significant hike in the current budget, aimed specifically at increasing the cost of high-frequency and high-leverage speculative trading.
Yes, STT is applicable to the sale of units of equity-oriented mutual funds on the exchange or when you redeem them with the fund house. The current rate for redemption of equity-oriented mutual funds is 0.001% for the seller.
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