NISM-Series-VIII: Equity Derivatives · Accounting and Taxation

Securities Transaction Tax (STT) on Futures and Options

Updated 11 October 2026 · Fact-checked

STT is a tax charged on trades on recognised exchanges. On futures it applies on the sell side, on the traded price. On options it applies on the sell side, on the premium. On an exercised option it applies on the intrinsic value and the buyer pays it. Check the current rates in your workbook.

Understand Securities Transaction Tax (STT) on Derivatives

Securities Transaction Tax (STT) is a tax levied on the value of certain transactions in securities and derivatives done on a recognised stock exchange. The exchange collects it through the broker and passes it to the government. It is a transaction-level tax. It is charged whether you make a profit or a loss.

For derivatives, the tax depends on the type of trade. In futures, STT is charged on the seller, on the price at which the contract is sold. In options, STT is charged on the seller of the option, on the premium. The buyer of an option pays no STT on purchase. If the buyer squares off by selling, STT is charged on the premium on that sale, at the sell-side rate.

The third case is an exercised option. When an option is exercised, or is in the money at expiry and is automatically exercised, STT is charged on the intrinsic value. That is the settlement price minus the strike for a call, or the strike minus the settlement price for a put. The buyer pays this STT. An out-of-the-money option expires worthless and attracts no exercise STT.

The rates are set by the Finance Act and have changed over time. Under the Finance Act 2024 position, futures are 0.02%, options premium 0.1% and exercised options 0.125%. Always use the rates given in the question or in your current workbook edition. Rates can be revised in later Budgets.

For tax treatment, income from F&O is generally business income. STT paid on these taxable securities transactions is allowed as a business deduction under section 36(1)(xv) of the Income-tax Act, 1961. It is not added to the cost of acquisition for capital gains.

Key formulas to remember

STT on futures: STT = Sale price × Quantity × 0.02%; Charged on the seller only. The buyer pays no STT on futures. Use the rate given in the question.
STT on options (premium): STT = Premium × Quantity × 0.1%; Charged on the seller of the option, on the premium. Buying an option attracts no STT.
STT on exercised options: STT = Intrinsic value × Quantity × 0.125%; Intrinsic value = settlement price − strike (call) or strike − settlement price (put). Paid by the buyer.
STT and deduction: STT paid on F&O = deductible business expense (section 36(1)(xv)); Applies when F&O income is taxed as business income. It is not part of capital gains cost.

How to solve Securities Transaction Tax (STT) on Derivatives questions

Use this method for any STT question on futures and options.

1Identify the instrument: futures, option sold or squared off, or exercised option.
2Identify who pays: the seller for futures and for option premium, the buyer for an exercised option.
3Pick the base: traded price for futures, premium for options, intrinsic value for exercise.
4Calculate the base value: price or premium or intrinsic value × quantity (lot size × lots).
5Multiply by the rate given in the question. If none is given, use the workbook rate.
6Check for traps: out-of-the-money expiry means zero exercise STT, and the buy leg of futures has no STT.
7For deduction questions, answer that STT is a business deduction for F&O traders, not a capital cost.

Quickest way: Three-line STT shortcut

When to use it: When the question gives a trade and asks for the STT amount or the payer.

Futures: sell side, on price, 0.02%.
Options: sell side, on premium, 0.1%.
Exercised: buyer, on intrinsic value, 0.125%. Zero if out of the money.
Multiply the base by the quantity, then by the rate. Move the decimal carefully: 0.02% = 0.0002.

Common mistakes in Securities Transaction Tax (STT) on Derivatives

Charging STT on both buy and sell legs of futures.
Students mix this with brokerage or stamp duty, which apply differently.
Fix: Remember that STT on futures falls on the sell side only.
Calculating exercise STT on the premium or on the full contract value.
The sale case is learned first and the base is carried over.
Fix: For exercised options, the base is only the intrinsic value: settlement price minus strike for a call.
Saying the option seller pays STT on exercise.
Students link STT with the seller everywhere.
Fix: On exercise, the buyer pays the STT. On premium, the seller pays.
Charging STT when an option expires out of the money.
Students assume every expiry is taxable.
Fix: An OTM option is not exercised. It has no intrinsic value, so exercise STT is zero.
Treating STT as part of the cost of acquisition for F&O.
STT is confused with brokerage added to purchase cost on delivery trades.
Fix: For F&O business income, STT is claimed as a deduction. It is not added to the cost for capital gains.
Using an old rate from memory when the question gives a rate.
Older notes show different rates.
Fix: Always use the rate stated in the question. Otherwise use the current workbook edition.

Worked examples

Example 1

A trader sells 250 units of a stock futures contract at ₹800. Assuming STT on futures of 0.02% on the sell side, how much STT is payable on this sale?

Options: (a) ₹10 (b) ₹40 (c) ₹200 (d) ₹250

Show the solution

Futures STT is on the seller, on the sale price.
Contract value = 250 × ₹800 = ₹2,00,000.
STT = ₹2,00,000 × 0.02% = ₹2,00,000 × 0.0002 = ₹40.
Option (c) ₹200 would come from using 0.1%, which is the options premium rate, so it is a trap.

Answer: (b) ₹40

Example 2

A trader buys 100 units of a Nifty call option with strike 24,000. At expiry the settlement price is 24,100 and the option is exercised. Assuming STT on exercised options of 0.125% on intrinsic value, who pays STT and how much?

Show the solution

On exercise, STT is paid by the buyer of the option.
Intrinsic value of a call = 24,100 − 24,000 = 100 points.
Total intrinsic value = 100 × 100 units = ₹10,000.
STT = ₹10,000 × 0.125% = ₹10,000 × 0.00125 = ₹12.50.

Answer: The buyer pays STT of ₹12.50.

Exam tips

Learn the payer for each case: seller for futures, seller for option premium, buyer for exercised options.
Watch the base in each case. Price for futures, premium for options, intrinsic value for exercise.
If the question gives a rate, use it. NISM questions often test the method, not memorised rates.
Remember that STT on F&O is a business deduction under section 36(1)(xv) and is not part of capital cost.
Check for out-of-the-money expiry. The answer is zero exercise STT.

Practice questions from Accounting and Taxation

Securities Transaction Tax (STT) on Derivatives: frequently asked questions

What are the STT rates on futures and options in India?

Under the Finance Act 2024 position, futures attract 0.02% on the sell side, options premium 0.1% on the sell side, and exercised options 0.125% on intrinsic value, paid by the buyer. Rates can change in later Budgets, so use the rate given in the question or your current workbook.

Who pays STT when an option is exercised?

The buyer of the option pays STT on exercise. It is charged on the intrinsic value, which is the difference between the settlement price and the strike. If the option expires out of the money, there is no exercise STT.

Is STT deductible for F&O traders?

Yes, when F&O income is treated as business income, STT paid on the transactions is allowed as a deduction under section 36(1)(xv) of the Income-tax Act, 1961. It is not added to the cost of acquisition for capital gains.

Do I pay STT when I buy a futures or options contract?

No. STT on futures and on option premium is charged on the sell side. Buying a futures contract or buying an option attracts no STT at that point. An option buyer pays STT only if the option is exercised.