India’s financial markets have seen a rapid boom in options trading, which is now set to face a strict test with the STT hike. From 1 April 2026, the Securities Transaction Tax (STT) on Futures and Options (F&O) trades is increasing. This move is part of the government’s effort to curb excessive speculation among retail investors, and analysts are closely evaluating its impact on trading costs, volumes, and overall market behaviour.
Let us understand this important change in detail and what it means for traders and investors.
What’s Happening?
The STT hike announced in the Union Budget 2026–27 will be implemented in the F&O segment from 1 April 2026. STT on futures contracts will increase from 0.02% to 0.05%, a 2.5 times jump. STT on options premium will rise from 0.10% to 0.15%, a 1.5 times increase. On options exercise, it will also increase from 0.125% to 0.15%. This change applies only to F&O trades, while STT rates for other segments will remain unchanged.
As mentioned in Business Today, Revenue Secretary Arvind Srivastava stated that the transaction volume in F&O, when compared to GDP or the size of the underlying securities market, reflects a high level of speculation, often leading to losses for small retail investors. The government’s objective is to discourage such speculation and reduce systemic risk.
Despite this, the boom in the options segment has continued. Nifty 50 index options premium turnover stood at Rs 9.13 trillion in November 2025, Rs 9.46 trillion in December, Rs 11.53 trillion in January 2026, Rs 12.83 trillion in February, and Rs 11.42 trillion till 23 March 2026.
Index options contract volume was 2.59 billion in November 2025, 2.99 billion in December, 3.56 billion in January 2026, 3.55 billion in February, and 2.34 billion so far in March.
India VIX has increased by 150% in 2026, including a 75% spike in the last one month, reaching around 25. According to a SEBI study, more than 90% (nine out of 10) retail F&O participants incur losses. STT collection in FY26 stood at Rs 55,717 crore till 17 March, compared to Rs 53,095 crore in the same period last year.
Increase in Trading Cost
STT is charged on trade value and not on profit, which means it applies even to losing trades. This is a major concern for retail and F&O traders. For example, on a futures transaction worth Rs 1 crore, the cost will increase from Rs 2,000 at the old rate to Rs 5,000 at the new rate.
Given the reliance of intraday traders and those using short-term strategies on thin margins, profitability is likely to decline. Analysts believe this increase in trading costs will make frequent trading less attractive.
Changes in Brokerage Fees and Response of Brokers
Along with the STT hike, brokerage platforms are also adjusting. Zerodha has doubled brokerage fees on select intraday F&O trades from 1 April, increasing from Rs 20 to Rs 40 per order. This applies to trades where clients do not meet SEBI’s 50% cash collateral rule. Zerodha’s market share stood at 16% in H1FY26, lower than its peak of 19.6% in FY23.
Out of the company’s total 1.6 crore customers, 68.5 lakh are active clients. In FY25, its revenue stood at Rs 8,847 crore, down 11.5%, while net profit was Rs 4,237 crore, declining 22.9%, the first such drop in 15 years. Around 70–80% of the company’s income comes from F&O trading fees. In February 2026, the average daily turnover of index options premium was Rs 68,500 crore on NSE and Rs 19,459 crore on BSE.
What Does This Mean for Investors?
Transaction costs will rise significantly for retail investors and high-frequency traders, impacting profitability. The STT hike will affect high-turnover strategies regardless of whether trades are profitable or not. Analyst Shrey Jain notes that this will substantially increase costs for retail and high-frequency traders, which may affect F&O activity, although broader participation trends are likely to remain intact.
According to Business Today, Kranthi Bathini, Equity Strategist at WealthMills Securities, believes the move is aimed at controlling the surge in derivatives trading. Meanwhile, Akash Shah, Technical Research Analyst at Choice Equity Broking, expects tax collections to rise, but trading volumes may face some pressure. Overall, investors may shift focus towards quality trades, fewer but high-conviction bets, and a more long-term approach.
What’s Next?
According to Business Standard, analysts expect the STT hike to impact F&O volumes in the short term, with a possible temporary decline in retail participation, while institutional hedging activity is likely to continue. Vinay Rajani, Senior Technical Research Analyst at HDFC Securities, points out that previous STT hikes led to short-term softening in volumes, followed by stabilisation. Sachin Gupta, Vice President-Research, Choice Broking, believes expiry strategies may evolve, and out-of-the-money options could become less attractive.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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