Budget 2026: Hiked STT aimed at curbing speculation, says government; markets react sharply

What happened: Markets fell sharply after Finance Minister Nirmala Sitharaman raised the Securities Transaction Tax (STT) on Futures and Options trading.

Why it matters now: Officials said the move is meant to discourage excessive speculation that causes people to lose “hard-earned money.”

What changes for people: Retail traders in F&O will face higher transaction costs, while long-term investors get policy clarity for the next decade.

Who is affected: Traders, brokerages, market participants, defence sector investors, and taxpayers shifting to the new tax regime.

Government defends STT hike as Sensex, Nifty fall sharply

Hours after the Union Budget 2026 triggered a 1,500-point drop in the Sensex and a 500-point slide in Nifty, government sources said the market reaction was expected due to the increase in STT on derivatives.

Revenue Secretary Arvind Shrivastava clarified that the intention behind raising STT was to reduce excessive F&O speculation, which he said has caused many individuals to lose significant savings.

Sources added:

“People are losing their hard-earned money. The government wants to curb reckless speculation that has become a concern.”

The decision comes at a time when India is witnessing a surge in high-risk F&O trading among young retail investors.

Why the markets reacted

Officials acknowledged two key reasons for the sudden sell-off:

1. Higher STT on F&O trades

This directly increases trading costs in the derivatives segment, which accounts for the bulk of daily market volumes.

Brokerages say many short-term traders may now reduce their exposure.

2. No new defence-specific announcements

Some investors were disappointed by the absence of new policy interventions in the defence sector.

However, sources stressed that the defence allocation has actually increased to ₹7.84 lakh crore, up 15 percent from last year’s ₹6.81 lakh crore.

They also said additional funding has been set aside for long-term defence requirements.

Budget 2026: Vision beyond a single year

Interestingly, officials highlighted that Part B of the Budget, which deals with taxation, was more detailed this year compared to the traditional Part A.

A senior source said the reason was the government’s attempt to present a vision for 2047, requiring deeper structural clarity on tax transitions, compliance patterns and revenue projections.

Shift to new tax regime expected by 2030

Government sources also said that by 2030, a majority of taxpayers will naturally transition to the new income tax regime.

Currently:

81 percent of taxpayers are already under the new regime

The government expects this to rise steadily as exemptions-based systems phase out

The Budget aims to provide a stable framework so that taxpayers “know what to expect” in the coming years.

Centre focuses on sectors hit by US tariffs

Officials stated that sectors affected by U.S. President Donald Trump’s tariff decisions — including textiles — have been addressed through targeted support measures.

The government believes these policies will protect domestic industries facing sudden global disruptions.

PM Modi flagged a historic first

In the Cabinet meeting after the Budget, Narendra Modi highlighted a unique milestone:

For the first time in independent India, a woman finance minister has presented nine consecutive budgets,

under the same Prime Minister.

Sources said this continuity reflects public trust in the government’s economic roadmap.