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2 Feb 2026·Source: The Indian Express
3 min
EconomyNEWS

Securities Transaction Tax (STT) Increased on Options Contracts

STT increased on options contracts; futures remain unchanged.

Securities Transaction Tax (STT) Increased on Options Contracts

Photo by Conny Schneider

The government has increased the Securities Transaction Tax (STT) on the sale of options contracts. The STT on options has been raised from 0.05% to 0.0625%. This change impacts the cost of trading options. There is no change in the STT on futures contracts. The revised tax structure aims to adjust revenue collection from securities transactions.

Key Facts

1.

STT on options increased: 0.05% to 0.0625%

2.

STT on futures: No change

UPSC Exam Angles

1.

Economy - Taxation, Government Revenue

2.

GS Paper 3 - Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

3.

Potential question types: Statement-based, analytical

Visual Insights

Impact of STT Increase on Options Trading

Key changes in Securities Transaction Tax (STT) on options contracts and its implications.

STT on Options (Sale)
0.0625%+0.0125%

Increased STT impacts the cost of trading options, potentially affecting trading volumes.

Previous STT on Options (Sale)
0.05%

The base rate before the recent revision.

STT on Futures
No Change

Futures contracts remain unaffected by this revision.

More Information

Background

The Securities Transaction Tax (STT) is a tax levied in India on the purchase and sale of securities listed on stock exchanges. It was introduced in 2004 to broaden the tax base and reduce tax evasion in securities transactions. Before STT, capital gains tax was the primary means of taxing such transactions, which was often circumvented. The introduction of STT aimed to simplify the taxation process and increase transparency. The evolution of STT rates has been influenced by market conditions and government revenue considerations. Initially, the rates were set at a certain level and have been revised periodically based on the need to adjust revenue collection and discourage excessive speculation. These changes are usually made through notifications issued by the Ministry of Finance, taking into account recommendations from various stakeholders and market analysis. The Finance Act plays a crucial role in enabling such changes. The legal framework for STT is primarily governed by the Securities Contracts (Regulation) Act, 1956 and the relevant provisions of the Income Tax Act. These laws provide the basis for levying and collecting STT on various types of securities transactions. The government has the power to amend the STT rates and regulations through notifications and legislative changes, ensuring that the tax regime remains aligned with the evolving dynamics of the securities market.

Latest Developments

Recent government initiatives have focused on optimizing revenue collection from the securities market while ensuring that the tax burden does not stifle trading activity. The increase in Securities Transaction Tax (STT) on options contracts is part of this broader strategy. The government aims to strike a balance between generating revenue and maintaining a vibrant and efficient market. The impact of this change is closely monitored by institutions like the Securities and Exchange Board of India (SEBI). There are ongoing debates among market participants regarding the optimal level of STT. Some argue that high STT rates can discourage trading and reduce market liquidity, while others believe that it is a necessary tool for revenue generation and curbing speculative activities. Different stakeholder perspectives, including those of brokers, investors, and regulatory bodies, are taken into account when formulating STT policies. The Ministry of Finance plays a crucial role in mediating these discussions. Looking ahead, the government is expected to continue refining the STT structure based on market feedback and economic conditions. Future adjustments may involve changes to the rates, scope, or exemptions related to STT. The goal is to create a stable and predictable tax environment that supports the growth and development of the Indian securities market. The impact of these changes on retail investors and overall market participation will be closely watched.

Frequently Asked Questions

1. What is the Securities Transaction Tax (STT) and why is it important?

The Securities Transaction Tax (STT) is a tax levied on the purchase and sale of securities listed on stock exchanges in India. It's important because it helps the government collect revenue from securities transactions and aims to reduce tax evasion.

2. What are the key facts about the STT increase on options contracts for the Prelims exam?

For the Prelims exam, remember that the STT on options contracts has increased from 0.05% to 0.0625%. The STT on futures contracts remains unchanged. Focus on these specific percentage changes.

Exam Tip

Pay close attention to the 'before' and 'after' percentages to avoid confusion in MCQs.

3. How does the STT on options differ from the STT on futures contracts after the recent changes?

After the recent changes, the STT on options contracts is 0.0625%, while the STT on futures contracts remains unchanged. This means options trading now incurs a slightly higher tax compared to futures trading.

4. Why is the STT on options contracts in the news recently?

The STT on options contracts is in the news because the government recently increased it from 0.05% to 0.0625%. This change is part of the government's strategy to optimize revenue collection from the securities market.

5. What is the government's rationale behind increasing the STT on options contracts?

The government aims to optimize revenue collection from the securities market while ensuring that the tax burden does not stifle trading activity. The increase in STT on options contracts is part of this broader strategy to strike a balance between revenue generation and maintaining a vibrant market.

6. As an IAS officer, what are the potential pros and cons of increasing the STT on options contracts?

Pros include increased government revenue. Cons include potentially reduced trading activity in options, which could affect market liquidity. A balanced approach is needed to ensure revenue generation without harming market efficiency.

7. What are the important numbers to remember regarding the STT changes?

Remember the previous STT rate on options: 0.05%, and the new STT rate on options: 0.0625%. There is no change in STT on futures.

Exam Tip

Focus on the percentage values and the specific instruments (options vs. futures).

8. How might the increase in STT on options contracts impact common citizens who invest in the stock market?

The increase in STT on options contracts will slightly increase the cost of trading options. This may reduce the profitability of options trading for retail investors, especially those who trade frequently.

9. What is the background context of Securities Transaction Tax (STT) in India?

The Securities Transaction Tax (STT) was introduced in 2004 to broaden the tax base and reduce tax evasion in securities transactions. Before STT, capital gains tax was the primary means of taxing such transactions, which was often circumvented. The introduction of STT aimed to simplify the taxation process.

10. What are the recent developments related to government initiatives on revenue collection from the securities market?

Recent government initiatives have focused on optimizing revenue collection from the securities market while ensuring that the tax burden does not stifle trading activity. The increase in STT on options contracts is part of this broader strategy.

Practice Questions (MCQs)

1. Consider the following statements regarding the Securities Transaction Tax (STT) in India: 1. STT is levied only on the sale of securities. 2. The recent increase in STT applies to both options and futures contracts. 3. STT is collected by the Securities and Exchange Board of India (SEBI). Which of the statements given above is/are correct?

  • A.1 only
  • B.2 only
  • C.1 and 3
  • D.None
Show Answer

Answer: D

Statement 1 is INCORRECT: STT is levied on both the purchase and sale of securities. Statement 2 is INCORRECT: The recent increase in STT applies only to options contracts, not futures. Statement 3 is INCORRECT: STT is collected by the central government, not SEBI. Therefore, none of the statements are correct.

2. The Securities Transaction Tax (STT) was introduced in India in which year?

  • A.1991
  • B.2000
  • C.2004
  • D.2010
Show Answer

Answer: C

The Securities Transaction Tax (STT) was introduced in India in 2004 to broaden the tax base and reduce tax evasion in securities transactions. Before STT, capital gains tax was the primary means of taxing such transactions.

3. What is the revised Securities Transaction Tax (STT) rate on the sale of options contracts after the recent increase?

  • A.0.025%
  • B.0.05%
  • C.0.0625%
  • D.0.1%
  • E.E) 0.125%
Show Answer

Answer: C

The Securities Transaction Tax (STT) on the sale of options contracts has been increased from 0.05% to 0.0625%. This change impacts the cost of trading options.

4. Which of the following statements accurately describes the primary objective of the Securities Transaction Tax (STT)?

  • A.To promote foreign investment in the Indian stock market
  • B.To reduce tax evasion and broaden the tax base in securities transactions
  • C.To provide subsidies to small investors
  • D.To regulate the activities of stock brokers
Show Answer

Answer: B

The primary objective of the Securities Transaction Tax (STT) is to reduce tax evasion and broaden the tax base in securities transactions. It was introduced to simplify the taxation process and increase transparency.

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