Higher tax on F&O trade is 'throwing sand in wheels'; to curb extreme trading: Niti Aayog member Virmani

Hiking the tax on futures and options trade is like ”throwing sand in the wheels” to ensure that trading does not happen in extremes, Niti Aayog member Arvind Virmani has said.

In the Union Budget for 2026-27, Finance Minister Nirmala Sitharaman has proposed raising the Securities Transaction Tax (STT) on Futures and Options (F&O) trading to protect small investors from heavy losses in speculative trades.

The STT is to be increased for futures contracts to 0.05 per cent from 0.02 per cent, and on options premium and exercise of options to 0.15 per cent from 0.1 per cent and 0.125 per cent, respectively.

”Restrictive trading is something a market person like me does not like, but what we call throwing sand into the wheels is a well known and well appreciated way of doing it,” Virmani said in an interview to PTI Videos.

The comments from Virmani, who is an advocate of a free market approach, came in response to a query related to the hike in STT.

”So you can look at STT as throwing a little sand into the wheels. So this kind of extreme thing does not happen,” he said.

The number of unique individual investors trading in the equity derivatives (F&O) segment was 1.06 crore in FY25, which dropped to about 75.43 lakh in FY26 (up to December 30, 2025).

A recent study by the capital markets regulator Sebi titled ’Comparative study of growth in equity derivatives segment vis-a-vis cash market’, showed that individual investors incurred net losses to the tune of Rs 1,05,603 crore in FY25.

Over 90 per cent of retail investors’ trades in the F&O segment lead to losses, and the capital markets regulator has also taken steps to reduce volumes in the past, the study had said.