The proposed increase in the securities transaction tax (STT) on derivatives from the next fiscal could shift trading from futures to options, where the hike in the levy is comparatively lower, say experts. And this, they say, could partly offset the estimated 10-15% dent in derivative volumes.
The STT on futures was increased in Budget 2026 by 150% to 0.05% and that on options by 50% to 0.15%. However, the STT on futures has a bigger impact because it is calculated on the notional or total contract turnover. In options, the tax is calculated on the premium turnover, which is the actual traded value and therefore tends to be less than the notional turnover.
Analysts and brokers estimate that the increase in the overall cost of trading options, though significant, will be half of that for trading futures. This could make jobbers and scalpers, who take frequent positional trades during the day and operate on wafer-thin margins, to shift from futures to options.
Gautam Kalia, chief investment solutions officer at Mirae Asset Sharekhan, calculates a 44% increase in the overall cost of trading 10 Nifty options against an 88% surge in overall cost for trading one Nifty futures contract, thanks to the hike in the levy.
The rise in trading costs implies that the breakeven point for futures, after which profit kicks in, is higher than that for options.
According to Kalia, this would result in trading shifting from index futures to index options, the two most popular derivative products.
A case in point is the BSE share, which recovered by 4.79% to ₹2701.6 on Monday, a day after it fell by almost 8% due to the STT increase on the budget day.
That’s because BSE sees liquidity only in index options, and not futures, and the recovery proves the bourse would not be adversely impacted by the hike, according to Amit Chandra, VP (research) at HDFC Securities.
BSE’s rival NSE is unlisted and recently received the regulator’s approval to go public.
"The doubling in the trading cost of futures could push some jobbers and scalpers to options, where they can trade synthetic futures through options, where the increase in overall cost of trading will be significantly lower," said Chandra.
Options have a larger share of the trading pie than futures, and so the hit to the overall derivatives turnover would be 10-15%, according to Rajesh Palviya, head of research (derivatives & technical) at Axis Securities.
Palviya also sees part of the trading shifting not just to options but also to the intraday cash segment, where STT is at a lower 0.025%, though Chandra believes that those trading popular index products are unlikely to move to intraday stock trading.
Options accounted for 75% of the National Stock Exchange’s transaction income of ₹2,760 crore in the September quarter, with futures contributing 11% and cash and currency derivatives the rest. The NSE had a market share of 77.1% in equity options as of 31 December, with the BSE accounting for the rest.
Options as a proxy
"Options can proxy as futures in certain combinations,” said Ashish Nanda, chief business digital officer at Kotak Securities. “Some trading interest can thus shift to options from futures."
For example, the buying of a call option and the selling of a put option are the equivalent of buying a futures contract, while the selling of a call option and the buying of a put option is similar to selling a futures contract. These are known as synthetic futures.
Nanda estimates that the STT for options on an average order size of ₹10,000 per lot will increase to ₹15 from ₹10 from 1 April. On a ₹17.5 lakh per lot order of index futures, the STT cost will surge to ₹875 from ₹350.
Win-win for government
One reason for the STT increase in the budget is to dissuade retail investors from trading in derivatives, where the Securities and Exchange Board of India estimates nine out of 10 traders lose money.
Either way, the government will win, said Nanda. If retail participation falls, losses are cut, and if it doesn't, the government collects more revenue through higher STT, he said.
The government earned ₹52,196.86 crore through STT in FY25. It had budgeted STT collections at ₹78,000 crore for FY26, which was revised to ₹63,670 crore due to a drop in derivative volumes after a slew of regulatory measures, including tripling the contract size and limiting weekly option expiry launches to one per exchange from multiple launches earlier.
The government has estimated STT collections of ₹73,700 crore in the next fiscal, following the STT increase on derivatives.
Some futures traders may shift toward intraday cash, which is likely the government's expectation, said Mohit Mehra, vice president (primary markets and payments) at Zerodha, the country's second-largest brokerage by number of clients.
“However, a significant portion of futures traders are positional and carry trades overnight,” said Mehra. “These traders cannot move to intraday cash, and with MTF (margin trade funding) trades carrying 4 times the STT (0.1% on both sides compared with 0.05% on sell in futures), options may be the only viable alternative for them."
Roop Bhootra, whole-time director at Anand Rathi Share and Stock Brokers Ltd, also highlighted that the percentage increase in STT is higher for futures compared to options. “Since options already account for about 85% of total derivative traded contracts, with futures at roughly 15%, this differential impact could further tilt trading activity towards options,” he said.