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On Sunday, the stock market experienced a significant decline after Finance Minister Nirmala Sitharaman revealed an increase in the Securities Transaction Tax as part of her Union Budget proposal for the fiscal year 2026-’27.

The Securities Transaction Tax is a direct levy applied to all transactions involving listed securities, including stocks, mutual funds, and derivatives on recognized stock exchanges.

Sitharaman proposed raising the tax on equity futures from 0.02% to 0.05%. Additionally, the tax on options will increase from 0.1% to 0.15%, as announced by the finance minister.

Equity futures are contracts that require buyers to purchase and sellers to sell a specific stock or index at a predetermined price on a future date. In contrast, options contracts provide the buyer the right, but not the obligation, to buy or sell a stock at a specified price by a certain date.

In the wake of this announcement, the benchmark Sensex dropped to a low of 79,899.42 during afternoon trading, having peaked at 82,726 at the start of the Budget speech.

This represented a decline of 2,828 points, or 3.4%, from the day's high.

The Nifty index also fell, reaching a low of 24,571.75, down 869 points or 3.4% from its peak.

By 2:30 PM, the Sensex had bounced back to 81,433, while the Nifty stood at 25,037. The Nifty Bank index was down by 1.8%.

The Union government had previously raised the long-term capital gains tax to 12.5% from 10% and the short-term capital gains tax to 20% from 15% in the Budget for 2025-’26.

During her speech, which lasted approximately 1 hour and 25 minutes, the finance minister made several announcements regarding taxation, fiscal deficit, and infrastructure investments.

She confirmed that there would be no changes to income tax rates and slabs for the fiscal year 2026-’27.

Furthermore, the 2025 Income Tax Act, which replaces the 1961 Income Tax Act, is set to take effect on April 1, following its approval by Parliament in August.

According to Sitharaman, India's fiscal deficit is projected to be 4.3% of the gross domestic product for the financial year 2026-’27, slightly lower than the Budget estimate of 4.4% for 2025-’26.