Union Budget 2026: Securities Transaction Tax (STT) Raised on Futures and Options

Investor sentiment was impacted by higher securities transaction tax on derivative trades and a change in how share buybacks will be taxed. 

These measures raised concerns around transaction costs and their potential influence on trading activity.

Increase in STT on Derivative Trades

The Budget outlined a rise in securities transaction tax on derivatives. The STT on Futures to 0.05% from present 0.02%. STT on options premium and exercise of options are both proposed to be raised to 0.15% from the present rate of 0.1% and 0.125% respectively.

Implications for Trading Activity

Higher transaction costs are expected to influence trading behaviour, particularly in segments where derivatives account for a significant share of turnover. Market participants are assessing how the revised STT structure could affect volumes on exchanges.

Revision in Share Buyback Taxation

The Budget also introduced changes to the taxation of share buybacks. Under the revised framework, buyback proceeds will be treated as capital gains across all shareholder categories.

Departure From the Previous Framework

Earlier, buyback proceeds were taxed as dividends in the hands of shareholders, with tax deducted at source before payout. The revised approach marks a shift in policy that investors are now factoring into their assessments.

Policy Context

These announcements were made during the presentation of the Union Budget 2026 in Parliament, forming part of a broader recalibration of capital market-related taxation.

Read More: Max Healthcare, Medanta and Apollo Hospitals React to Union Budget 2026 Medical Tourism Measures.

Conclusion

Market infrastructure stocks declined following Budget 2026 proposals on derivative taxation and buyback treatment. As investors review the implications of these changes, sentiment in this segment is likely to remain sensitive to their impact on market participation and activity.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.