In her Budget 2026 speech on February 1, 2026, Finance Minister Nirmala Sitharaman proposed an increase in the Securities Transaction Tax (STT) on futures and options (F&O) transactions. The levy on futures is set to increase two-and-a-half times to 0.05% from 0.02%, while options will see a 50% rise to 0.15% from 0.1%.

Sitharaman stated that the STT hike aims to provide a "reasonable course correction" in the capital market's F&O segment and generate additional government revenue. She specified that the STT on options premium and the exercise of options would both be raised to 0.15%, from the current rates of 0.1% and 0.125% respectively.

The announcement triggered an immediate and sharp downturn in the equity market. The benchmark Sensex crashed by over 2,000 points intraday, and the Nifty 50 index fell below 24,600. Shares of BSE and Angel One fell by up to 10%, Groww declined by over 9%, and IIFL Finance traded 4.9% lower following the budget announcement. On February 1, 2026, BSE-listed companies experienced a combined loss of over ₹10 lakh crore in market capitalization. The Nifty 50 ended the day nearly 500 points lower at 24,825, marking its largest Budget-day decline since 2020.

According to analysts, the government's decision to leave the transaction tax on equity cash-based trades untouched signals its intention to make trading in equity derivatives more expensive. While the cost of trading options is expected to increase by less than a fifth, the cost of trading futures, which sees negligible volume on the BSE, will more than double.

Rajesh Baheti, managing director of Crosseas Capital Services Pvt. Ltd., noted that the STT increase would have a medium impact on trading volumes and was an ill-timed move given the current market sentiment. Baheti suggested that reducing the STT on cash-based trades while increasing it on derivatives would have been a more favorable approach and that the current move is a dampener for arbitrage funds.

Shankar Sharma framed the STT increase as the Budget's main outcome for markets, viewing it as an attempt to curb speculative turnover in derivatives, which he described as harmful, drawing in young participants. Sharma stated that derivatives are "a poison x cocaine, eating away at the roots of our youth," and that their destructive effect would be felt for generations.

The increase in STT is expected to increase transaction costs for active and short-term trading strategies. For example, with Bank Nifty trading at ₹52,000, one lot of Bank Nifty futures consists of 30 units, taking the total contract value to ₹15.6 lakh. Under the earlier STT rate of 0.02%, a trader would have paid around ₹312 as STT, but with the revised rate of 0.05%, the tax outgo jumps to approximately ₹780 per lot, an increase of ₹468 on a single trade. The 150% increase in STT directly raises transaction costs for active traders and high-frequency participants, potentially reducing trading volumes and market liquidity.