Why in news?
The Union Budget 2026‑27 raised the Securities Transaction Tax (STT) on derivatives trading to curb excessive speculation. From 1 April 2026, STT on futures contracts will increase from 0.02 percent to 0.05 percent, and STT on options—both on the premium and upon exercise—will rise from 0.1–0.125 percent to 0.15 percent.
Background
STT is a tax levied on the purchase or sale of specified securities on recognised stock exchanges. Introduced in 2004, it is collected automatically by brokers and deposited with the government at the time the transaction occurs. The tax applies to trades in equity shares, derivatives (futures and options), equity‑oriented mutual fund units, and certain initial public offerings and unit linked insurance policy redemptions. It is not based on profit but on transaction value.
What is changing?
- Higher rates for derivatives: The Budget amends Section 98 of the Finance (No. 2) Act, 2004 through Clause 143 of the Finance Bill. STT on futures will be 0.05 percent (up from 0.02 percent). For options, both the premium paid by the buyer and the exercise transaction will attract STT of 0.15 percent (previously 0.1 percent and 0.125 percent respectively).
- Unchanged rates elsewhere: STT on delivery‑based equity trades (0.1 percent), intraday equity trades (0.025 percent), sale of equity mutual fund units (0.001 percent) and other categories remain the same.
- Who pays: For equity purchases the buyer pays STT, while for equity sales the seller pays. On options, the seller pays STT on the premium; when an option is exercised, the buyer pays. On futures, the seller pays. The broker collects and remits the tax automatically.
Rationale and impact
- The government aims to moderate speculative activity in the booming derivatives market, which has seen volumes far exceeding spot market turnover.
- Higher transaction costs may discourage high‑frequency traders and reduce systemic risks from leveraged positions. Long‑term equity investors remain unaffected.
- Market participants may see slightly lower liquidity and higher costs in futures and options trading. However, the core structure of STT and taxes on delivery‑based trades remain unchanged.
Source: CNBC
