Finance Minister Nirmala Sitharaman Defends STT Hike to Curb Excessive F&O Speculation

The Finance Minister stated that the increased Securities Transaction Tax on futures and options is intended to address heightened speculative behaviour in derivatives trading. The comments were made a day after the Union Budget 2026–27 announcement.

She highlighted concerns from families regarding losses suffered by young traders in the F&O segment. The Minister noted that derivatives trading carries high risk, and the STT revision aims to discourage excessive speculation.

Government’s Rationale for Raising STT On Derivatives

Finance Minister Nirmala Sitharaman said the decision followed reports from parents whose children had faced losses in derivatives trading. She described the F&O segment as a speculative market that exposes retail participants to disproportionately high risks.

The government also noted that the overall volume of derivatives trading in India exceeds 500 times the country’s GDP. The Minister said the STT hike was designed to moderate such speculative activity without altering other tax rates.

SEBI Studies On Retail Losses In F&O Trading

The Finance Minister referred to a SEBI study indicating that nearly 90% of F&O participants lose money. She noted that earlier SEBI findings reported that about 93% of individual traders in equity derivatives incur losses.

Another study also showed that more than 75% of loss-making traders continue trading despite sustained setbacks. These findings reinforced the government’s view that speculative derivatives trading has grown substantially among retail investors.

Nature Of Derivatives And Associated Risk Exposure

Futures and options allow traders to take positions on price changes in underlying assets without owning them. These instruments support hedging and price discovery functions in financial markets.

However, leveraged exposure significantly magnifies the financial risks involved for retail traders. The Finance Minister emphasised that high turnover and speculative strategies increase the probability of losses among individuals.

Details Of the Revised Securities Transaction Tax

Under the Union Budget 2026–27, STT on futures contracts is proposed to increase to 0.05% from 0.02%. The STT on options premium is set to rise to 0.15% from the current 0.1%.

Additionally, the STT on exercising options is proposed to be revised to 0.125% from the existing rate. All other STT rates across asset classes remain unchanged as per the Budget announcement.

Read More: Here is How Trading Will Cost More for Retail Investors.

Conclusion

The proposed STT increase is positioned by the government as a measure to reduce speculative F&O trading. SEBI’s data on retail losses has played a key role in shaping the decision.

The revision is intended to protect inexperienced traders exposed to leveraged markets. The Finance Minister maintains that the changes target speculation rather than regular market participation.

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