The government’s decision to raise the securities transaction tax (STT) on futures and options should not be viewed as a short-term revenue measure, but as a step aimed at protecting household savings from speculative losses, the Chief Economic Adviser V Anantha Nageswaran said today.

“It’s important to look at it not as a short-term transaction tax on futures and options. It is important not to look at it as a revenue generation measure,” Nageswaran said at CII's Post Budget Session.

He made a note of earlier tax policy choices to underline the government’s intent. When long-term capital gains tax was raised to 12.5%, the exemption threshold was also increased to ₹1.25 lakh, effectively shielding the majority of small investors. “Ninety percent of the capital gains taxpayers actually have capital gains of less than ₹1 lakh. So, the purpose is not revenue,” he said. 

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Under the Budget proposals, STT on equity futures has been raised to 0.05% from 0.02%, while STT on options has been increased to 0.15% from 0.10% on option premia and from 0.125% on exercised options. The revised rates will come into effect from April 1.

Retail losses in F&O at the core of STT decision

According to the CEA, the concern lies in the growing participation of retail investors in derivatives trading, particularly short-duration options, where losses are disproportionately borne by households. Citing a Sebi study published two years ago, Nageswaran said “nine out of ten trades in these areas, futures and options, lose money for the underlying speculator or the investor.”

He likened such trading to gambling, warning that the odds are structurally stacked against ordinary participants. “This is like you can never beat the casino,” he said, adding that short-tenure options suffer from rapid value erosion due to factors such as gamma and beta decay. “They end up basically benefiting the option sellers rather than the option buyers, which is the ordinary public.”

Nageswaran described the higher STT as a corrective measure rather than a punitive one. “This is not a revenue generating measure, but it is actually like a medicine that is needed to make sure that households are able to use their savings earned in a hard way to maximise their wealth over the long term, rather than losing it in a trade where the deck is loaded against them,” he said.

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The government is focused on long-term competitiveness and resilience rather than short-term market reactions. He reiterated that the Budget prioritises manufacturing, strategic self-reliance and human-centric skill development, all of which are critical for sustained growth and financial stability.

After a steep fall on Budget Day, Indian equity markets rebounded sharply on Monday; the Sensex closed 943 points, or 1.17%, higher at 81,666, while the Nifty50 ended the session 1.06% higher at 25,088.