New Delhi: Budget 2026 has brought major news for people who actively trade in the stock market. Finance Minister Nirmala Sitharaman announced an increase in Securities Transaction Tax (STT) on Futures and Options (F&O) trades. This means higher trading costs for investors, especially those who trade daily in derivatives.
Along with this, the government has also announced that capital gains tax will now apply on share buybacks. Earlier, buybacks were seen as a tax-efficient way for companies to return money to shareholders.
What Is STT?
Securities Transaction Tax (STT) is a tax charged on every security transaction done on recognised stock exchanges in India. It applies to equity shares, equity mutual funds, and derivative products like futures and options.
STT is charged at the time of the trade, whether the investor makes a profit or a loss.
India introduced STT on 1 October 2004. The aim was to make tax collection easier and reduce tax evasion. Later, even when Long Term Capital Gains (LTCG) tax was brought back in 2018, STT continued.
What Has Changed in Budget 2026?
The government has clearly increased the tax burden on F&O trading.
Futures STT: Increased from 0.02 percent to 0.05 percent
Options STT: Increased from 0.10 percent to 0.15 percent
This means futures traders will now pay more than double the earlier tax on every transaction.
- In the previous budget too, STT was raised. At the same time, capital gains tax was also increased:
- LTCG went up from 10 percent to 12.5 percent
- STCG went up from 15 percent to 20 percent
- So traders are now paying higher taxes at multiple levels.
Impact on Traders and Investors
The direct impact of this move is higher transaction costs. Active retail traders who do frequent F&O trades will feel the maximum impact.
Brokerage firms and asset managers believe that the combined effect of higher STT and capital gains tax reduces the attractiveness of equity and derivatives trading.
Share Buyback Now Taxable
Another big change is that returns from share buybacks will now be taxed under capital gains. Earlier, buybacks were considered tax-efficient for investors. This move increases the tax burden on shareholders.
Why FPIs Are Unhappy?
Market experts say these decisions are negative for Foreign Portfolio Investors (FPIs). FPIs wanted LTCG tax to be removed, even if STT was increased.
But the government did not remove LTCG and instead raised STT. This is seen as a “double negative” for foreign investors and may impact derivative volumes and foreign investment sentiment in the coming days.
