Budget 2026 introduced an increase in the Securities Transaction Tax on futures and options. The change directly raises the cost of trading in derivatives.
Under the Union Budget 2026, the Securities Transaction Tax on futures has been increased from 0.02 percent to 0.05 percent. The Securities Transaction Tax on options premium and on the exercise of options has been increased from 0.1 percent and 0.125 percent to 0.15 percent. As a result, the cost per trade for futures and options has risen.
The higher tax is expected to affect trading frequency in the derivatives segment, as each transaction now carries an additional cost. Reduced trading activity could affect volumes over time.
Brokerage companies are expected to be among the most affected, as a significant portion of their income is linked to futures and options activity. Brokerage fees, platform charges, and interest income are largely driven by trading volumes in this segment. An increase in transaction costs may lead to lower trading activity, which could place pressure on revenue and profitability.
Depositories such as Central Depository Services Limited may also be indirectly affected. Lower trading and account activity could impact transaction-based income and growth. Following the announcement, brokerage and capital market infrastructure stocks recorded a decline, and the equity market also witnessed a fall.
Market participation in the derivatives segment may decline as trading costs rise. Lower trading volumes could affect liquidity, with a potential widening of bid-ask spreads. Exchanges, brokers, and depositories depend on volume growth for earnings, and any reduction in volumes could affect their income.
Higher transaction taxes may also influence the competitiveness of Indian markets compared with global markets, with potential implications for trading activity and foreign participation.
Experts said the increase in the Securities Transaction Tax could affect brokerage companies over the long term by putting pressure on earnings as trading costs rise.
