New Delhi: Finance Minister Nirmala Sitharaman Sunday proposed an increase in the Securities Transaction Tax on Futures and Options trades in the Union Budget 2026. The move aims to raise the cost of derivative trading, which has seen a massive surge in retail participation over the last few years.
“I propose to raise the STT (Securities Transaction Tax) on futures to 0.05 per cent from 0.02 per cent. STT on options premium and exercise of options are both proposed to be raised to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, respectively,” Sitharaman said. “To provide reasonable course correction in the F&O (Futures and Options) segment in the capital market and generate additional revenues for the Government, it is proposed to raise the STT on Futures to 0.05 per cent from the present 0.02 per cent.”
STT is a government tax applied when you trade on the exchanges. The government is aiming to make it more expensive to trade in the stock market risk case segments—the F&O segment. By raising these taxes, the finance minister aims to slow down the “betting” style of trading that has become popular with small investors, especially in Tier 2 and Tier 3 cities, and, at the same time, earn more tax money for the country. The goal is to keep people away from risky, short-term gambles and move them towards safer, long-term investing.
India’s F&O landscape
Data from the Securities and Exchange Board of India (SEBI) provides a grim look at the F&O landscape. According to a SEBI report, about 90 per cent of F&O traders lose money, often because of market illiteracy. More than 75 per cent of loss-makers kept trading even after losing money for two consecutive years. With gambling banned in India, F&O has become a proxy for many.
From FY22-24, at least 93 per cent of individual retail traders lost money in this segment. The scale of these losses is significant. SEBI found that the average loss per individual trader was approximately Rs 1.25 lakh in more than three years. In total, the retail investors lost over Rs 1.8 trillion between 2022 and 2024. Despite these heavy losses, participation is high among the younger crowd. The data also shows the share of traders under the age of 30 rose to 43 per cent, up from 31 per cent just two years prior, states the SEBI study.
The study further said that individuals from Beyond Top 30 (B30) cities made up more than 72 per cent of the total F&O trader base, a higher proportion compared to mutual fund investors, 62 per cent of whom are from B30 cities. More than 75 per cent of individual F&O traders in FY24 had declared an annual income of less than Rs 75 lakh. But, despite consecutive years of losses, more than 75 per cent of loss-making traders continued trading in F&O.
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‘A retrograde move’
Mayank Bansal, president of UAE-based Hedge Fund, who flagged the expiry day manipulations in the Jane Street case, described the government’s decision as “a retrograde move”.
While the finance ministry views the tax hike as a safety measure, Bansal argues that increasing the cost of doing business is a step backwards for the efficiency of Indian markets.
According to Bansal, the primary issue is the creation of friction costs.
“In any financial market, the ability to enter and exit a tree quickly and cheaply is vital. By raising the STT, the government is essentially making it more expensive for traders to move their money,” Bansal said.
He suggests the move is undesirable for any geography, as high entry and exit costs discourage participation and stifle market fluidity. He also warned that the negative impact of this friction far outweighs the government’s goal of reducing speculation.
“Trading values will likely dip as investors become overburdened by these mounting costs,” he added.
“Sad day for F&O traders,” Tejas Khoday, CEO and co-founder of trading platform Fyers, posted on X. “It’s hard not to feel frustrated looking at the direction STT policy has taken since Covid. In 2022-23, STT collections stood at 32,000 Cr., rising marginally in 2023-24. Then the escalation began, earning the government 55,000 Cr. projected for 2024-25, followed by an estimated 78,000 Cr. for this financial year.”
He added that the overall tax collection from F&O traders is likely hit Rs 1 lakh crore every year soon.
“I hope policies like this don’t erode the hard-earned liquidity and confidence Indian markets have taken so long to achieve. Widespread retail participation is India’s strength and should be encouraged, not punished like this,” Khoday said.
All other rates remain the same
Arvind Shrivastava, secretary of the Department of Revenue, Ministry of Finance, said that the only change made in STT is in the future and options. “All the other STT rates remain the same,” he said.
“The primary objective of raising the tax rates on STT has been that it is felt that when you look at the volume of transactions in futures and options, whether you compare it to the size of GDP or size of the underlying securities market, it is largely in the realm of heavy speculation, which results in losses to small retail, unsophisticated investors,” he said, addressing a press conference on Sunday, after the Union Budget 2026 was announced.
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The craze in India’s Tier 2 and 3 cities
In Tier 2 and 3 Indian cities, F&O trading has transformed from a financial activity into an online hustle. In towns across Uttar Pradesh, Bihar, Maharashtra, and Madhya Pradesh, thousands of young traders are leaving traditional employment to chase “quick money” promised by derivatives.
This craze is fuelled by the rise of user-friendly mobile applications, brokers, and a social media ecosystem where “fin-influencers” influence market trading as an easy shortcut to a luxury lifestyle.
Bansal was first to notice the disruption of the F&O market in July 2023, and by January 2024, his suspicions about Jane Street’s apparent manipulation were confirmed.
For many, F&O trading is treated less like a complete hedging tool and more like a high-stakes mobile game. It has become all about luck, which was very prevalent during the Jane Street alleged market manipulation, when many Indians from these small towns were making trades, halfway across the world, a New York-based firm, Jane Street, was allegedly moving the same markets.
Its “high frequency” strategies, SEBI has said, helped it amass Rs 36,502 crore in profits, purportedly through “egregious manipulative practices”. Small traders, with little stock market knowledge and who relied on social media tips, suffered, and then, they became part of the 93 per cent of retail F&O traders who lost money between FY22 and FY24, according to an earlier SEBI report.
(Edited by Saptak Datta)