Trading volume will hold steady despite higher STT imposed in Budget 2026: ICRA

"Nonetheless, some moderation in derivatives activity remains a risk, which could translate into lower trading turnover and consequently softer brokerage volumes and revenues from the derivatives segment for the securities broking industry," ICRA said. The proposed increase in STT on F&O trades, following the earlier hike implemented in October 2024, reflects the continued policy intent to temper excessive speculative activity, the report said.

With the announcement of hike in the Securities Transaction Tax (STT) on futures and options (F&O) trades in the Union Budget 2026, credit rating agency ICRA projected a 16% spike in the STT collections for the Financial Year 2027, above the revised FY2026 estimate. In ICRA's view, these budgeted numbers assume that trading volumes will hold steady despite the higher transaction costs.

"Nonetheless, some moderation in derivatives activity remains a risk, which could translate into lower trading turnover and consequently softer brokerage volumes and revenues from the derivatives segment for the securities broking industry," ICRA said. The proposed increase in STT on F&O trades, following the earlier hike implemented in October 2024, reflects the continued policy intent to temper excessive speculative activity, the report said.

Prior to this proposed change, robust growth in derivatives market participation and the 60% STT hike in H2 FY2025 had led to expectations that STT collections would rise to Rs 780 billion in FY2026 from Rs 522 billion in FY2025, ICRA highlighted. However, measures aimed at curbing hyperactive trading dampened market volumes, resulting in an 18% downward revision in FY2026 STT collections from the budgeted estimate of Rs 780 billion.

As announced by the Union Finance Minister Nirmala Sitharaman in Budget 2026, the rate of STT on the sale of an option in securities has been increased from 0.1 per cent to 0.15 per cent, the sale of an option in securities where the option is exercised has been increased from 0.125 per cent to 0.15 per cent while the rate of STT on the sale of a future in securities has been increased from 0.02 per cent to 0.05 per cent. The revised rates shall take effect from the 1st day of April, 2026 and shall apply to derivatives transactions in securities entered into on or after that date.

Issuing FAQs on the rate hike, the Income Tax Department on Sunday said the total volume of transaction in options and futures is more than 500 times of Indian Gross Domestic Product (GDP) and there was a justification to curb speculation. In Rupee terms, our GDP is 300 lakh crore rupees, while the volume for options and futures is more than 1.5 lakh lakh crore rupees. Therefore, there is justification for increase in rates to curb purely speculative activity in options and futures, it said. (ANI)

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