On 1 February 2026, the Union Budget was presented and the market is buzzing about what changed and what stayed the same. One topic quickly stood out in investor conversations is STT. The STT changes in Budget 2026 matter because they directly affect the cost of trading, especially in futures and options.
This blog breaks down what STT is, what exactly changed, and what it could mean for traders and investors going forward.
What Is STT and What Changed in Budget 2026?
STT stands for Securities Transaction Tax. It is a tax charged on specified transactions done on recognised stock exchanges in India, and it shows up as a separate charge when you place trades.
For example, assume you sell an equity option and the option premium is ₹10,000. If the STT rate is 0.10% on the option premium, the STT would be ₹10 for that trade.
However, in Budget 2026, the STT rates were increased for equity derivatives. These revised rates apply from the new financial year (1st April 2026), for tax year 2026 to 2027 onwards.
To make the STT changes in Budget 2026 easier to understand, it helps to first see the STT rates that applied up to 31 March 2026.
| Transaction type | Settlement / trigger | STT |
| Equity share or business trust unit purchase | Delivery based | 0.10% |
| Equity-oriented fund unit purchase | Delivery based | Nil |
| Equity share or business trust unit sale | Delivery based | 0.10% |
| Equity-oriented fund unit sale | Delivery based | 0.00% |
| Equity share or equity-oriented fund unit or business trust unit sale | Non delivery | 0.03% |
| Equity option sale | On option premium | 0.100% of option premium |
| Equity option exercised | On intrinsic value | 0.125% of intrinsic value |
| Equity futures sale | On traded price | 0.020% of traded price |
How the law defines taxable securities transactions
As defined u/s 97 of the Finance (No. 2) Act, 2004 in Chapter VII, the definition sits in Section 97. A transaction is treated as “taxable” if it is one of these:
- Exchange-traded purchase or sale: Purchase or sale of an equity share, a derivative, a unit of an equity-oriented fund, or a unit of a business trust, entered into on a recognised stock exchange.
- Offer for sale in an IPO, then listed: Sale of unlisted equity shares under an offer for sale to the public included in an initial public offer, where those shares are subsequently listed on a recognised stock exchange.
- Offer for sale in a business trust, initial offer, then listed: Sale of unlisted units of a business trust (acquired in specific restructuring cases) under an offer for sale included in an initial offer, where those units are subsequently listed.
- Sale to the mutual fund (equity-oriented fund units): Sale of a unit of an equity-oriented fund to the Mutual Fund.
- Certain ULIP-linked unit transactions with an insurer: Sale, surrender or redemption of a unit of an equity-oriented fund to an insurance company on maturity or partial withdrawal, for a unit-linked insurance policy issued on or after 1 February 2021.
Revised STT Rates (Effective April 1, 2026)
The recent revision does not change STT across the board. STT changes in Budget 2026 changes apply to equity derivatives and specifically to the sale side of futures and options transactions:
| Equity derivatives transaction | STT charged on | Revised rate | Earlier rate |
| Sale of an option in securities | Option premium | 0.15% | 0.10% |
| Sale of an option in securities where the option is exercised | Intrinsic price | 0.15% | 0.125% |
| Sale of a futures in securities | Traded price | 0.05% | 0.02% |
Why STT Was Hiked in Union Budget 2026?
The Explanatory Memorandum to the Finance Bill, 2026 says the derivatives market has reached meaningful scale and depth, so the government is making a calibrated revision to STT on options and futures. It adds that the hike is meant to address a disproportionate increase in speculation in futures and options trading.
In the background, retail participation in equity F&O has expanded sharply, and regulator data shows outcomes have been poor for most individuals. A published study reports that 93% of individual traders in equity F&O incurred losses across FY22 to FY24.
Mechanically, a higher STT adds a small extra cost to each derivatives trade. That makes rapid, high turnover strategies less attractive, which can help reduce excessive churn and support market stability.
Revenue is a secondary effect. The tax collected per trade increases, and Budget estimates show STT collections at ₹73,700 crore for 2026–27 versus a revised estimate of ₹63,670 crore for 2025–26, though the final outcome depends on how much trading volumes adjust after costs rise.
Who actually pays STT
STT is not split equally by default. The law assigns it to either the buyer or the seller, depending on the exact kind of trade and how it settles.
| Transaction | Who pays STT | STT is charged on | Notes |
| Equity delivery buy (shares, business trust units) | Buyer | Buy value | STT applies on delivery trades |
| Equity delivery sell (shares, business trust units) | Seller | Sell value | STT applies on delivery trades |
| Equity intraday or non-delivery sell | Seller | Sell value | Buyer side does not pay STT here |
| Equity futures sell | Seller | Traded price | STT is levied on sell trades for futures |
| Equity options sell | Seller | Option premium | STT is on the premium for option sell trades |
| Equity option exercised at expiry (in the money) | Buyer | Intrinsic value | STT is levied on intrinsic value on final exercise |
| Physically settled stock futures or options (delivery) | Both buyer and seller | Delivery trade value | Treated like delivery based equity STT |
| Equity-oriented mutual fund units (sell or redeem) | Seller | Sell or redemption value | Purchase is generally not subject to STT |
The broker debits it automatically, and it appears as a separate line item in the contract note. The recognised stock exchange collects it and remits it to the Central Government. For mutual fund transactions, the trustee or an authorised person is responsible for collection and payment.
How the STT Hike Impacts F&O Traders
The STT hike matters for F&O traders because it raises your per-trade cost, even if your trade outcome is flat. The following shows the potential impacts of the STT changes in Budget 2026:
- Higher breakeven on every trade: If your strategy relies on small, frequent profits, the extra STT pushes the breakeven higher. This hits high turnover styles the most.
- More pressure on scalping and intraday churn: Because STT is charged per transaction, doing more trades increases total cost quickly. That can reduce net returns even when your win rate stays the same.
- Wider spreads: If participation drops, you can see wider bid-ask spreads and more slippage, especially in less liquid contracts. That is another cost, beyond STT itself.
- Option sellers feel it directly, option buyers can feel it indirectly: The STT on option premium is on the sell side, so option sellers pay it. Buyers may still see some impact via pricing and spreads, depending on liquidity.
- Exercise becomes slightly more expensive when in the money: If an option is exercised, STT applies on the intrinsic value at the revised rate. This affects cases where contracts are exercised rather than squared off.
