Finance Bill 2026: STT Rate Increase on Futures and Options

Clause 143 of the Finance Bill, 2026 proposes to amend section 98 of the Finance (No. 2) Act, 2004, which deals with the charge of Securities Transaction Tax (STT).

The amendment seeks to increase the rates of STT applicable to futures and options (F&O) transactions carried out through recognised market infrastructure. The revised rates will apply to transactions entered into on or after 1 April 2026, i.e., from tax year 2026-27 onwards.

Background: Securities Transaction Tax Framework

STT was introduced by the Finance (No. 2) Act, 2004 as a mechanism for efficient collection of tax on specified securities transactions carried out through recognised market infrastructure. Under the STT framework:

• The obligation to collect and deposit STT is placed on:
  • Recognised stock exchanges
  • Mutual funds (for equity-oriented schemes)
  • Insurance companies
  • Lead merchant bankers, as applicable
• STT supports the policy objective of promoting transparent, exchange-traded transactions.

Existing STT Rates on Derivatives

Before the proposed amendment, section 98 prescribes the following STT rates:

What Does Finance Bill 2026 Propose?

Clause 143 proposes to increase STT rates as under:

✔ The amendment only revises rates. The scope, charge, and collection mechanism of STT remain unchanged

Meaning of the Proposed Amendment

In substance, the amendment means:

• Higher STT incidence on derivatives transactions
• Uniform STT rate of 0.15% for options, whether sold or exercised
• A material increase in STT on futures, reflecting higher trading volumes

The amendment does not:

• Introduce any new category of taxable transactions
• Change the persons responsible for collection
• Affect cash market (equity delivery) STT rates

Rationale for the Increase

The explanatory note to Clause 143 states that:

• The derivatives market has achieved significant scale and depth
• There has been a disproportionate increase in speculative activity, particularly in futures and options
• A calibrated revision of STT rates is therefore considered appropriate

The stated objective is to address excessive speculation, not to alter the structure of securities taxation.

Implications of the Revised STT Rates

1. Higher Transaction Cost for F&O Trades

• Futures and options trades will attract higher STT per transaction
• The impact is arithmetical and rate-driven

2. Greater Impact on High-Frequency and High-Volume Trading

• Since STT is levied on every eligible transaction,
• Traders with high turnover will experience a proportionately higher cost

Note: The Bill does not explicitly categorise or target any class of trader.

3. No Change for Equity Delivery Investors

• STT on delivery-based equity transactions is unchanged
• The amendment is confined strictly to derivatives

4. No Additional Compliance Burden

• Collection responsibility continues with recognised intermediaries
• No new reporting or filing obligations are created for taxpayers

Effective Date

✔ Applicable from 1 April 2026. Relevant for tax year 2026-27 and subsequent years
✔ Applies to transactions in options and futures entered into on or after that date

Conclusion

Clause 143 of the Finance Bill, 2026 introduces a rate-based increase in Securities Transaction Tax on derivatives, reflecting the maturity and volume of India’s futures and options market. The amendment:

• Retains the existing STT framework
• Revises rates in a targeted manner
• Seeks to moderate excessive speculative activity without altering market structure

Overall, it represents a calibrated fiscal adjustment, with direct cost implications for derivatives trading but no change in legal architecture or compliance processes.

Related Posts:

Finance Bill, 2026: Union Budget 2026-27