STT on F&O Trading: How the cost of your every deal will increase, why STT on F&O has spoiled the mood of investors – Market

When is STT applicable in F&O?

This tax is levied differently on both futures and options in F&O. Futures STT is levied only on SELL, not on BUY. When an investor sells a futures contract, STT is deducted at the rate of 0.0125 per cent on the total trade value. The rules of STT are slightly different in options. The rules of STT in options trading are different from those of futures. Here STT is levied only when the option is exercised, i.e. the option is In The Money (ITM) on the expiry day and it is settled.

If the investor sells the option before expiry, then STT is not imposed. The STT rate in options is 0.125 per cent, which is applicable on the settlement value and not on the premium. STT is a government tax, which cannot be avoided in any way. This tax is automatically deducted with the brokerage and the trader does not have to pay it separately.

Big decline seen in brokerage shares

Due to this announcement of the Finance Minister in the budget, there was a decline in brokerage shares in the stock market. At around 12:30 pm, BSE shares fell nearly 14 per cent, while brokerage stocks like Angel One and Nuvama were down nearly 10 per cent. NSE Capital Market Index also fell by about 6 percent. The market was already expecting some changes in STT, as there was a long standing demand to increase the tax on derivative trading to strengthen the cash market.

Why is F&O on the government’s radar?

There is also a study by SEBI behind this step of the government, in which it was revealed that 9 out of 10 retail investors trading in F&O suffer losses. Keeping this in mind, the government and regulators are keeping a close watch on the derivatives segment. SEBI said that about 93 percent of individual traders suffer losses in the F&O segment. Despite these losses, more than 75 percent of these traders continued trading, raising concerns that the segment was acting like a lottery rather than a true investment.

The Finance Minister said that due to the rapid increase in retail investment, the government wants that investors should not lose a large part of their savings in this derivatives trading. Ahead of Budget 2026, SEBI tightened F&O rules in 2024 and 2025. Under this, only one weekly expiry contract was allowed on each exchange, so that the turnover caused by speculation could be reduced.

According to SEBI’s January 2026 bulletin, there was some slowdown in the equity derivatives market in December 2025. During this period, the average daily turnover of equity futures and options premium declined by 11 per cent and 8 per cent on month-on-month basis. However, when compared on a yearly basis, the turnover of options premium increased by 11 per cent, while the turnover of equity futures was down by 5 per cent. This clearly shows that despite the ups and downs in the derivatives market, retail participation still remains at a high level.

What is the effect of increase in STT, expert opinion

Market experts say this sharp increase in STT may increase costs for traders, hedgers and arbitrageurs, which may reduce volumes in derivatives. He believes that the government’s objective is more to balance trading volumes than to increase revenue. Experts also say that the increase in STT may not be much but it definitely shows the thinking of the government that it wants to keep an eye on betting.

Geojit Investments On the STT increase, Anand James, Chief Market Strategist, said that on the face of it, it is positive for equities as options trades will now become expensive. Obviously, its impact on the derivatives segment at the portfolio level may be seen in the form of rebalancing and may put some pressure on the equity segment in the near term. But it is difficult to say that this increase alone will stop speculation in the derivatives market, especially options.

LKP Securities Jatin Trivedi, VP Research Analyst, Commodity and Currency, says the Union Budget has created a stir in the market as the fiscal deficit target has been kept at 4.3 per cent, while the STT on futures has been increased by 0.05 per cent and on options by 0.15 per cent. “This move may impact participation in F&O.”

Geojit Investments Chief Investment Strategist V.K. Vijayakumar says that the STT increase is applicable only on F&O trades, it will not have any impact on FPI investments. The purpose of increasing STT is to stop retail traders from F&O, because according to SEBI, 92 percent of retail traders are losing money in this.