F&O STT Hike From April 1: All You Need To Know

If you deal in derivatives, you might be impacted by a rise in taxes starting today. In a move aimed at protecting small investors, the government has decided to increase the securities transaction tax or STT on F&O.

On futures contracts, STT has been hiked from 0.02% to 0.05%. And the transaction tax on options premium and exercise of options has risen to 0.15% from 0.1% and 0.125%, respectively.

To be clear, the hike impacts only futures and options or F&O as they are popularly called, with equity delivery and intraday trading left out of its purview.

Moreover, the hike is not the first such move meant to discourage small investors from burning up in the derivatives market. Back in November 2024, the watchdog had launched a whole raft of measures including compulsory upfront premium payments, curbs on certain spread benefits, and stricter exposure limits.

But despite all these steps, investors kept rampaging throughout the derivatives segment as seen in their trading activity. So it remains to be seen if the fresh protective measures will do any good in reining them in.

Let’s have a deeper and wider look through these frequently asked questions or FAQs listed below:

How Much More Expensive Does Derivatives Trading Get Now That the Hike in Securities Transaction Tax Has Been Rolled Out From April 1, 2026?

It does get expensive for futures but not so much for options. Whereas the hike in tax nearly doubles the breakeven for futures traders, options don’t see a massive increase as the rise in breakeven is barely meaningful under the new regime.

Is There Any Positive Coming out of All This, Especially for a Small Investor Like Me?

The positive is that you don’t overtrade now, you think twice before investing as casual trades may get punished by the new tax regime discouraging dallying with derivatives.

How Do You Think the Market Will React to the Hike in Tax?

The hike may impact liquidity and stretch spreads but nobody sees any carnage coming as investors shift strategies and stabilise volumes in the long term.

Will Options and Futures Behave Differently Now That Their Breakevens Vary Under the New Tax Regime?

Yes, the move might prompt participants towards options as sophisticated high frequency traders resort to replicating futures through options, thereby creating synthetic futures and achieving lower tax outgo.

Is The Government Really Concerned?

Yes, definitely, studies by the watchdog indicate that more than 90% of small investors suffer losses in futures and options. So clearly, this is more a protective move rather than a revenue generating one as the government doesn’t want small investors to crash and burn through the derivatives segment.