Budget 2026: Mixed Signals for Capital Markets, NRIs Benefit

The Budget 2026 proposes an increase in STT on Futures to 0.05% from 0.02%. STT on Options Premium and Exercise of Options are proposed to be raised to 0.15% from 0.1% and 0.125% respectively. Remember these percentages for potential MCQs.

Securities Transaction Tax (STT) is a tax levied on the purchase and sale of securities listed on stock exchanges. It was introduced to broaden the tax base and reduce tax evasion in capital markets. Prior to STT, capital gains tax was the primary means of taxing income from securities transactions.

The increase in the investment limit for individual PROIs under the Portfolio Investment Scheme from 5% to 10% aims to encourage greater participation from non-resident investors in the Indian equity market. This could lead to increased foreign capital inflow and potentially boost the stock market.

The Portfolio Investment Scheme (PIS) allows Individual Person Resident Outside India (PROI) to invest in equity instruments of listed Indian companies. The budget proposes to increase the investment limit for an individual PROI under this scheme from 5% to 10%, making it more attractive for NRIs to invest in Indian markets.

Pros: Increased government revenue. Cons: Higher transaction costs for investors, potentially reducing trading volumes and market liquidity. It might also make the Indian markets less attractive compared to other global markets.

The ₹100-crore incentive for municipal bonds likely aims to strengthen urban infrastructure financing. This aligns with the government's focus on urban development and improving the financial health of municipal corporations.

Increasing the overall PROI investment limit to 24% signals the government's intent to attract more foreign portfolio investment. This provides more headroom for foreign investors to participate in the Indian equity market.

Nirmala Sitharaman, as the Finance Minister, presented the Budget 2026. Knowing the key personalities involved in economic policy-making is important for understanding the context and implications of the budget.

Further reforms could include simplifying regulatory processes, improving corporate governance standards, and enhancing transparency in financial markets. These measures can build confidence among foreign investors.

Increased STT could lead to slightly higher costs for retail investors, potentially impacting their returns. Increased PROI limits could boost the stock market, indirectly benefiting those with investments in equities or mutual funds.