The Union Budget 2026, presented on February 1, 2026, has introduced a significant “course correction” for the derivatives market. Finance Minister Nirmala Sitharaman proposed a steep hike in the Securities Transaction Tax (STT) on Futures and Options (FnO) to curb what the government calls “excessive speculation.”
What is STT, and how does it have an impact?
To put it simply, STT (Securities Transaction Tax) is a direct tax levied on every purchase and sale of securities listed on the Indian stock exchanges (NSE and BSE).
Think of it like a “toll tax” for the stock market—you pay it just for using the road, regardless of whether your trip (trade) results in a profit or a loss.
| Feature | STT | Income Tax (Capital Gains) |
| When to pay? | Instantly (at the time of trade) | At the end of the year |
| Paid on? | Total Transaction Value | Net Profit only |
| If you lose? | You still pay STT | You don’t pay income tax. |
Why does STT matter?
- The “Breakeven” Hurdle
For intraday traders and scalpers (who look for small price movements), STT is the biggest enemy. If you buy a stock and its price doesn’t move up enough to cover the STT and brokerage, you actually lose money even if the trade was “green.” A higher STT means you need a bigger price jump just to break even.
- Curbing Speculation
The government uses STT as a volume control knob. By increasing STT on FnO (as they did in Budget 2026), they are making “gambling-style” frequent trading more expensive. They want to nudge people away from risky 5-minute trades and toward long-term investing.
- Revenue for the Government
STT is an extremely efficient tax for the government because:
- It is impossible to evade (it’s automated).
- It provides immediate cash flow to the treasury.
- With Indian markets hitting record volumes, it generates billions in revenue even if the market is crashing.
- Impact on Liquidity
If STT becomes too high, big institutional players and “Algos” (automated bots) might move their money to other markets (like Dubai, Singapore, or crypto). When these big players leave, “liquidity” drops—meaning it becomes harder for you to buy or sell a stock at the exact price you want.
The shift to crypto is a hot topic of debate, but it comes with a complex “tax vs. risk” trade-off. Here are the key points:
Budget 2026: The New FnO Tax Rates
Effective from April 1, 2026, the transaction costs for derivatives will rise significantly:
| Segment | Old Rate | New Rate (Budget 2026) | Change |
| Equity Futures | 0.02% | 0.05% | +150% |
| Options Premium | 0.1% | 0.15% | +50% |
| Options Exercise | 0.125% | 0.15% | +20% |
- Impact: The hike targets the “sell-side” of transactions. For high-frequency traders and scalpers, these costs eat directly into thin margins, potentially making many automated strategies unviable.
- Rationale: The ministry noted that FnO turnover is nearly 500 times the India GDP, signaling a systemic risk from retail participation in highly leveraged trades.
Why Are Traders Shifting to Crypto?
With FnO costs rising, many retail traders are eyeing the cryptocurrency (Virtual Digital Assets – VDA) market. Here’s why:
- Leverage Availability: While SEBI is tightening FnO rules, crypto exchanges often offer significantly higher leverage (often up to 20x–50x) on futures.
- 24/7 Market: Unlike the Indian stock market (9:15 AM – 3:30 PM), crypto never sleeps, appealing to the “always-on” retail trader.
- Tax Arbitrage (The Speculative Angle): While India taxes crypto gains at a flat 30%, some traders believe that crypto futures & options can be treated as “speculative business income” under normal slab rates (if declared as a business), allowing them to deduct expenses like brokerage and internet.
Market Consequences
- Liquidity Migration: Expect some volumes to move to offshore platforms or “grey market” crypto apps, though the government is actively monitoring these via the PMLA (Prevention of Money Laundering Act).
- Nudged to Investing: By keeping Cash Delivery STT unchanged, the government is sending a clear message: Stop gambling in derivatives and start investing in the underlying companies.
Disclaimer: Crypto products & NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.