Perhaps the writing was on the wall. Even the bull run of Indian public markets in 2025 which ended the year roughly 9-10% higher than a year ago and the record public market listings did not stop the government from putting brakes on the aggressively growing but highly volatile derivative trading in the country.

Building upon its commitment of raising the transaction cost for Futures & Options trading, the union finance minister Nirmala Sitharaman announced during Budget 2026 further raising of the Securities Transactions Tax on F&O trading, setting the markets in a frenzy.

The markets, which remained open on Budget day, went into a sell-off frenzy set off by STT hikes on F&O premium and execution, as well as the other major taxation announcement of taxing the buybacks at par with capital gains tax.

Sitharaman proposed raising the STT on Futures to 0.05% from the present 0.02%, while options premium and exercise of options are both proposed to attract an STT of 0.15%, up from the present rate of 0.1% and 0.125% respectively. These changes will be applicable for trades and investments on and after April 1, 2026.

“The rates of STT have been revised periodically to reflect changes in market structure and trading behaviour. In view of the scale and depth achieved by the derivatives market, it is considered appropriate to undertake a calibrated revision of the applicable rates of STT on options and futures transactions,” the Finance Bill, 2026 stated.

The government clarified that the move is aimed to address the disproportionate increase in speculation in futures and options trading.

“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,” Arvind Shrivastava, secretary, department of revenue, ministry of finance said after the budget address.

The hikes are meant to essentially handle the systemic risk in derivative markets, and the government is confident that the changes will curb some of the enthusiasm for F&O trading among inexperienced traders and retail investors. “Even after this increase,........

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