Explainer: What is STT and How Its Hike in the Budget Shook the Stock Markets

Finance Minister Nirmala Sitharaman recently announced a significant increase in the Securities Transaction Tax (STT) on Futures & Options (F&O) trading in her Budget 2026–27 speech. This move triggered sharp declines in the stock markets, with the BSE Sensex falling 1,546.84 points to 80,722.94 and the NSE Nifty dropping 495.20 points to 24,825.45.

What is STT?
STT, or Securities Transaction Tax, is levied on transactions in the stock market, particularly on F&O trading. Every purchase or sale of futures and options is subject to this tax, which directly increases the cost of brokerage for traders.

What Changed in the Budget:
The Finance Minister proposed the following increases:

• Futures: STT increased from 0.02% to 0.05%
• Options Premium: STT increased from 0.10% to 0.15%
• Options Exercise: STT increased from 0.125% to 0.15%

Sitharaman explained that the hike aims to “bring appropriate reforms to the F&O segment of the capital market while generating additional revenue for the government.”

Impact on Market Players:
The announcement immediately affected brokerage and exchange companies. During a special weekend trading session, shares of BSE, Groww, and Angel One dropped by up to 13.5%.

Why the Stocks Fell:

• BSE derives around 60% of its revenue from equity derivatives.
• Angel One earns approximately 75% of its brokerage income from F&O trades.
• Nuvama Wealth sees about 23% of its asset services income from F&O activities.

Additionally, the Budget proposed capital gains tax on share buybacks for all shareholders, including 30% for promoters and effective 22% for promoter companies, which further raised market concerns.

Warnings from Experts:
Analysts warn that the STT increase raises transaction costs for traders, hedgers, and arbitrageurs, potentially reducing liquidity and trading volumes in the derivatives market. Shripal Shah, MD & CEO of Kotak Securities, noted:
“The STT hike, coming on top of last year’s increase, will raise transaction costs and could slow down F&O activity. While the stated aim is revenue generation, it appears to be more about controlling trading volumes. Higher STT may also put pressure on foreign portfolio inflows in the near term, especially in derivative-heavy and high-frequency strategies.”

Disclaimer:
The insights provided are from individual analysts and brokerage firms, not NBT. Investors are advised to consult certified financial experts before making any investment decisions, as market conditions can change rapidly.