Outlook Business Desk
Starting April 1, traders in India will experience a rise in securities transaction tax (STT) on futures and options (F&O), following Budget 2026 reforms, increasing transaction costs and influencing how investors engage with and strategise in derivatives markets.
The futures segment faces the largest hike, as STT jumps from 0.02% to 0.05% of notional turnover, now levied on the entire contract value, substantially raising the expense of trading futures for market participants.
Experts note that the 150% rise in STT for futures is substantial, sharply increasing trading costs and potentially reducing participation, particularly among traders who depend on high-volume or frequent transactions in the futures market.
Rising futures taxes may encourage traders to adopt synthetic futures using options, offering a cheaper alternative under the new STT rules, Ashish Nanda of Kotak Securities said, prompting changes in how positions and hedging strategies are structured.
Institutional investors and high-net-worth individuals may turn to options-based strategies for hedging, as using options to create synthetic futures can be more cost-effective than trading futures directly under the new STT rates, Ashish Nanda added.
In the options segment, STT rises from 0.1% to 0.15% on premium turnover, a 50% increase, but since the tax applies only to premiums and not full contract value, the impact is relatively moderate, Ashish Nanda highlighted.
Meanwhile, Shrey Jain, CEO of Stocko by InCred Money, noted that the STT hike from April 1 surprised some participants, raising transaction costs for retail and high-frequency traders. He added that the impact may be selective, with broader market participation expected to remain stable.
Alongside the STT changes, new Reserve Bank of India (RBI) norms requiring 100% collateral for proprietary trading were due from April 1 but have been postponed to July 1, offering temporary relief to market participants adapting to regulatory shifts.