Budget Stock Market Highlights: STT on F&O up, buybacks taxed as capital gain - here's what FM Sitharaman announced

Budget 2026: Finance Minister Nirmala Sitharaman announced a series of measures in her Budget speech aimed at accelerating and sustaining economic growth in line with the vision of the government ‘Sabka Sath Sabka Vikas’.

Emphasising the continued thrust on capital expenditure, she proposed increasing government capex to ₹12.2 lakh crore for FY27 from ₹11.2 lakh crore in FY26.

Alongside the capex push, the Budget carried significant stock market–relevant announcements spanning financial sector restructuring, foreign investment access, taxation changes, and bond market reforms. The announcements included plans to restructure public sector NBFCs such as Power Finance Corporation and Rural Electrification Corporation, allow individuals resident outside India to directly buy Indian equities with higher ownership limits, and raise the investment cap for Persons of Indian Origin to 24%.

On the taxation front, the Budget proposed measures such as buyback proceeds to be taxed as capital gains, higher STT on futures and options and extended timelines for revising income tax returns, while keeping LTCG and STCG unchanged. The Finance Minister also announced incentives for municipal bonds, introduction of total return swaps on corporate bonds, and a review of foreign exchange management non-debt instrument rules to deepen India’s bond and capital markets.

Stock Market Today

The Indian stock market witnessed a sudden, sharp fall in intraday trade on Sunday, February 1, after the Finance Minister (FM) presented her ninth consecutive budget, announcing measures to accelerate economic growth while maintaining fiscal prudence.

The Sensex crashed more than 2,300 points from the day's high, while the Nifty 50 dropped to 24,571.75 after the FM announced the STT hike. Sitharaman proposed to raise the STT by more than 50% on futures to 0.05% from 0.02% and to 0.15% from 0.01% earlier on options transactions.

Stock Market Announcements in Today's Budget

• Restructuring of PFC, REC: Finance Minister Nirmala Sitharaman proposed restructuring public sector NBFCs as part of a broader plan to strengthen public sector financial institutions. The Budget outlined a vision focused on expanding credit flow and improving technology adoption, with the government aiming to enhance efficiency by consolidating NBFCs into larger and stronger entities such as Power Finance Corporation and Rural Electrification Corporation.
• Foreigners Can Buy Indian Stocks Directly Now: Finance Minister Nirmala Sitharaman proposed allowing individuals resident outside India to invest directly in Indian equities through the Portfolio Investment Scheme, simplifying access that was earlier largely routed through registered FPIs or NRI channels. To support this move, the government plans to raise the individual ownership limit in listed companies from 5% to 10% and the combined cap for all such investors from 10% to 24%. The step is aimed at broadening foreign participation, improving price discovery, deepening shareholding patterns, and strengthening long-term capital formation in Indian markets through a more standardised and accessible investment route.
• PIO Investment Limit Raised to 24%: Finance Minister Nirmala Sitharaman proposed increasing the overall investment limit for Persons of Indian Origin from 10% to 24% in Indian listed companies. The move is aimed at attracting higher foreign portfolio flows by enabling PIO investors to take larger cumulative positions in domestic equities. By expanding this ceiling, the government seeks to deepen market participation, improve liquidity, and encourage long-term capital inflows from the global Indian diaspora into Indian capital markets.

Announcement on Tax

• Buyback Proceeds to Be Taxed as Capital Gains: Finance Minister Nirmala Sitharaman proposed that the consideration received by shareholders from a company’s buyback will now be taxed under the head “Capital Gains” instead of being treated as dividend income. She added that a differential tax rate will apply for promoters, where the effective tax rate on buyback gains will be 22% for promoters that are domestic companies and 30% for promoters other than domestic companies. Under the tax rules that came into effect from October 1, 2024, amounts received by shareholders from buybacks were classified as “deemed dividend” under the Income Tax Act, 1961.
• STT raised on Futures and Option: Finance Minister Nirmala Sitharaman on Sunday, February 1, proposed an increase in Securities Transaction Tax on both futures and options. The STT on futures has been raised to 0.05% from the earlier 0.02%, signalling tighter taxation on derivatives trading as part of broader market measures announced in the Budget.
• ITR revision window extended: In the Union Budget announcement, Finance Minister Nirmala Sitharaman proposed extending the deadline for revising income tax returns from December 31 to March 31 with payment of a nominal fee. She also proposed a staggered filing schedule, where individuals filing ITR 1 and ITR 2 will continue to file returns until July 31, while non-audit business cases and trusts will be allowed time until August 31.
• NO announcements on long-term capital gains tax (LTCG) and short-term capital gains tax (STCG)

Announcement on Bonds

• Municipal Bonds Incentive of ₹100 crore: Finance Minister Nirmala Sitharaman proposed an incentive of ₹100 crore for a single municipal bond issuance exceeding ₹1,000 crore, encouraging larger cities to raise substantial funds through debt markets. Deepening bond markets can expand investment options and improve long-term returns for investors seeking stable income, while creating diversified funding avenues beyond traditional banking channels for issuers.

The Finance Minister said, “I propose to introduce a market making framework with suitable access to funds and derivatives on corporate bond indices. I also propose to introduce total return swaps on corporate bonds. Municipal bonds to encourage the issuance of municipal bonds of higher value by larger cities. I propose an incentive of 100 crore rupees for a single bond issuance of more than 1,000 crore.”

• Introduction of Total Return Swaps on Corporate Bonds: Additionally, total return swaps on corporate bonds will be introduced, enabling investors to gain exposure to bond returns without directly holding securities, thereby improving participation, liquidity, and risk management.
• Review of foreign exchange management non-debt instruments rules: Budget 2026 also proposes to review foreign exchange management non-debt instruments rules to better align foreign investments with India’s evolving economic priorities and capital market requirements.