Zerodha Ltd.’s Nithin Kamath has questioned the rationale of the STT hike on F&O trading, asserting that the impact is skewed.
“I don’t know the exact reasoning behind the increase in STT,” the co-founder of India’s second largest online trading company, wrote on X, formerly Twitter. “If the goal was to reduce speculative activity in F&O, then I’m not sure this will do anything.”
According to Kamath, the impact of the STT hike is skewed to begin with, for it falls mostly of futures while options—where 95% of trades actually happen—are far more speculative than futures.
Budget 2026: STT Hike on F&O trading
The Union Budget 2026 has proposed a hike in Securities Transaction Tax (STT) to deter participation of newbie investors from F&O trading—a risky business. The intent is to moderate the “unchecked explosion” of retail gambling in the financial markets.
The proposal hits both sides of the derivative aisle. For Futures, the STT rate will jump from 0.02% to 0.05%. The impact on Options is even steeper—the tax on options premiums and the exercise of options will rise from 0.1% to 0.15%. But the effective increase is skewed.
- Futures STT: 0.02% → 0.05% (150% hike)
- Options STT: 0.1% → 0.15% (50% hike)
Now, considering that 95% of F&O trading happens in Options, a 50% STT hike may not be a large-enough deterrent.
“The other problem with the uncertainty from steady STT hikes is that, at some point, you will start seeing a material impact on the trading volumes because transaction costs make trading unviable,” Kamath said. “You’re already kinda seeing that with futures.”
To be sure, the STT hike on F&O trading has won favour among other market veterans, including Shankar Sharma.
“Derivatives are a poison x cocaine, eating away at the roots of our youth. Its destructive effect will be felt by generations,” Sharma, the founder of Gquant Data Science, wrote on X. “It’s a pure wealth transfer from the traders to F&O specialist brokers, who have been massive winners of this drug + gun trade ( not their fault).”
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Kamath, however, believes that if the government wants to reduce speculative F&O trading, then it should consider a eligibility criteria for who can trade.
“I know it’s an unpopular opinion, but this will remove a lot of uncertainty among brokers and traders,” he said. “It’s a much better approach than a death by a thousand STT hikes.”