Finance Minister Nirmala Sitharaman unveiled measures in the Union Budget 2026 that increase costs for derivatives trading while imposing stricter tax rules on share buybacks. These changes aim to discourage speculative activities and enhance government revenues, alongside targeted relief for corporations through a reduced Minimum Alternate Tax (MAT).
Increased Securities Transaction Tax on Derivatives
The budget raises the Securities Transaction Tax (STT) on futures contracts from 0.02 percent to 0.05 percent, more than doubling the levy and primarily affecting high-volume and short-term traders. For options premium trading, the STT increases from 0.10 percent to 0.15 percent. These adjustments signal a clear effort to limit excessive speculation in the derivatives market.
Stricter Taxation for Share Buybacks
A major shift targets share buybacks, with the government planning to treat them as capital gains taxable in the hands of all shareholders, moving away from the existing structure. Promoters could face an additional tax on buybacks, designed to eliminate loopholes that facilitate tax-efficient cash distributions to stakeholders.
Corporate Tax Relief via Lower MAT
To provide support to businesses, the finance minister reduced the MAT rate from 15 percent to 14 percent. Companies can now offset brought-forward MAT credits accumulated up to March 30, offering relief to those with pending credits from prior years.
Trade Measures to Boost Domestic Manufacturing
The budget eliminates customs duty exemptions on certain items produced in India, strengthening the focus on local manufacturing. Meanwhile, the duty-free import allowance for inputs used in seafood processing rises to 3 percent of the value, aiding exporters in this sector.
