Higher F&O transaction costs and market volatility may keep tax revenue subdued in FY27.

Why STT Collection May Stay Muted in FY27

The government’s Securities Transaction Tax (STT) collections could remain under pressure in FY27, largely due to slowing trading activity in both the cash and derivatives segments of the stock market.

What Is the Government Expecting?

For FY27, the Centre has projected ₹73,700 crore in STT collections. This is lower than the ₹78,000 crore estimated for FY26, signaling caution as market volumes have cooled over the past year.

Why Are STT Collections Falling?

The decline is mainly due to a sharp slowdown in F&O (futures and options) trading, which contributes a significant portion of STT revenue. In FY26, lower derivatives activity forced the government to revise its STT estimate down to ₹63,700 crore.

Trading Volumes Are Cooling

• Derivatives market: Average daily turnover fell nearly 35% in 2025 compared to 2024, according to NSE data.
• Cash market: Average monthly turnover also declined, reflecting reduced participation and cautious investor sentiment.

Lower volumes directly translate into lower transaction tax collection, even if tax rates remain unchanged.

Impact of Higher STT on F&O Trades

The recent increase in STT rates on futures and options has raised trading costs, especially for retail traders, HNIs, and active derivatives participants. Brokerages warn that this could further dampen volumes and affect market liquidity.

Who Feels the Heat?

• Discount brokers and wealth managers may see pressure on earnings if derivatives volumes drop
• Exchanges could face lower activity levels
• Reduced market depth may also impact foreign investor participation

Is There a Silver Lining?

Some experts believe higher STT rates could still support government revenue. Since F&O trading is relatively price-inelastic, many traders may continue to trade despite higher costs, helping STT collections remain stable over time.

Bottom Line

STT collections in FY27 may stay muted in the short term due to softer trading volumes and higher transaction costs. However, given the scale of India’s derivatives market, the tax could still remain a steady source of revenue for the government in the medium term.

Voice Of Traders by Spider Software

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