STT hike in F&O intended to discourage speculative trade, handle systemic risk in derivatives: Revenue Secretary

The hike in Securities Transaction Tax (STT) on futures and options is intended to discourage speculative tendencies and handle systemic risk in the derivatives market, Revenue Secretary Arvind Shrivastava said on Sunday (February 1, 2026).

The Budget has proposed an increase in the STT on futures contracts to 0.05% from 0.025%. STT on options premium and exercise of options are proposed to be raised to 0.15% from the present rate of 0.1% and 0.125%, respectively.

Addressing the post-Budget conference, Mr. Shrivastava said speculative trade in F&O was resulting in losses to small and retail investors.

“The government’s intention is to discourage speculative tendencies, and the increase in rate is essentially in that direction. So, it is meant to essentially handle the systemic risk in derivative markets,” he added.

According to studies by Sebi, over 90% of retail investors’ trades in the F&O segment lead to losses, and the capital markets regulator has also taken steps to reduce volumes in the past.

Mr. Shrivastava said that even after this increase, the STT rates will remain modest compared to the volume of transactions.

The hike in STT is aimed squarely at high-volume derivative trading, rather than the cash equity market. It is expected to meaningfully increase transaction costs for active and short-term trading strategies.

Market experts believe that the move could help discourage excessive speculative activity and promote a more balanced market structure. However, some caution that it may weigh on foreign portfolio investor (FPI) participation in the near term.

“The increase in STT, particularly in futures and options, is likely to act as a marginal negative for FPI flows, especially for high-frequency and derivative-focused global funds,” said Aakash Shah, Technical Research Analyst at Choice Equity Broking.

Following the hike, Sensex plunged 2,370.36 points, or 2.88%, to slip below the 80,000-mark to 79,899.42 during the afternoon trade. The 50-share NSE Nifty tanked 748.9 points, or 2.95%, to 24,571.75. Later, the market bounced back.