Chief Economic Advisor V Anantha Nageswaran on Monday defended the increase in Securities Transaction Tax on derivatives trading, saying it is meant to secure household savings from highly speculative bets rather than government revenue generation.
"The purpose (of STT hike) is not on revenue generation... the purpose is to ensure hard earned savings is used to maximize wealth in households. The SEBI has pointed out how people lose money through F&O," he told reporters on Monday.
The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman on Sunday, proposed raising STT on futures to 0.05% from the present 0.02% and on options premium and exercise of options to be raised to 0.15% from the present rate of 0.1% and 0.125% respectively.
The market sentiment reflected on Dalal Street as shares of brokerage-related companies nosedived after the move.
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The tax changes are mechanical in design. The STT applies per transaction, so a higher rate increases the cost of trading for participants who buy and sell frequently, including intraday strategies that rely on turnover. By raising the transaction levy, the government increases the all-in cost of derivatives trades alongside exchange fees and other statutory charges.
Nageswaran echoed the point made by Revenue Secretary Arvind Shrivastava after the budget, who said: "The volumes in F&O market is in the realm of heavy speculation when compared to the size of GDP or underlying securities market. This results in huge losses to retail investors. The government's intention is to discourage speculation. The increase in STT is meant to handle the systemic risk in derivatives market. The rate is still modest compared to the volume."
Sitharaman did not link the STT change to investor protection in her budget speech. She described it as a “course correction” in the derivatives segment and said it would “generate additional revenues” for the government.
ALSO READ: Budget 2026: STT Hike In Budget A Welcome Move To Curb F&O 'Poison', Says Shankar Sharma
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