Why the Hike in STT Sparked Market Turbulence: Finance Minister Nirmala Sitharaman Explains

New Delhi: Finance Minister Nirmala Sitharaman announced an increase in the Securities Transaction Tax (STT) on Futures & Options (F&O) during her budget speech for the financial year 2026-27. The announcement triggered significant volatility in the stock market, with the Sensex falling as much as 3,000 points at one stage.

Protecting Small Investors, Not Raising Revenue
Clarifying the rationale behind the move, Sitharaman stated that the STT hike was not intended to increase government revenue, but rather to protect small investors from substantial losses in speculative F&O trading. Citing a study, she noted that over 90% of retail participants in the F&O market incur heavy losses, highlighting the need for preventive measures to safeguard their interests.

Details of the STT Increase

• Futures contracts: STT increased from 0.02% to 0.05%
• Options premium: STT increased from 0.1% to 0.15%
• Exercise of options: STT increased from 0.125% to 0.15%

Sitharaman emphasized that the decision was taken after hundreds of investors contacted the Finance Ministry, requesting government intervention to curb losses in the F&O segment.

A Preventive Measure
When asked whether the government could have imposed limits on investor participation instead of raising STT, Sitharaman clarified that the tax hike would act as a deterrent and protective barrier, reducing speculative activity in the derivatives market.

Impact on Retail Investors
In FY 2024-25, 1.06 crore individual investors participated in the F&O segment, which declined to around 75.43 lakh by Dec 2025. According to SEBI, retail investors suffered a net loss of ₹1,05,603 crore during FY 2024-25 in F&O trading.

Global Developments Provide Positive Signals
Sitharaman also highlighted a positive development from the US, which has reduced tariffs on Indian exports from 25% to 18%, providing a boost to Indian exporters. This adjustment is part of the bilateral trade agreement between India and the US, aimed at facilitating smoother trade and enhancing export growth.

The Finance Minister’s measures reflect a focus on market stability, investor protection, and strategic trade facilitation, balancing domestic market concerns with international trade opportunities.