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Budget headlines may look intimidating when you hold a market-linked policy. When you hear STT in budget 2026, it is easy to assume your ULIP returns will get impacted immediately. Fortunately, the changes are aimed at derivatives, so many policies may only feel a mild difference.
If you are the holder of a ULIP plan, you are already dealing with market risk, ULIP charges, and a long holding horizon. The real question is whether your policy’s fund strategy involves instruments where the STT-related update in budget 2026 applies significantly.
What is STT?
Securities Transaction Tax, or STT, is a transaction levy collected on trades that are executed on recognised stock exchanges. It applies to equities, equity-oriented mutual funds, and derivatives.
What does Budget 2026 say about STT?
In budget 2026, the key change surrounding STT is on equity derivatives. The STT on equity futures is proposed to rise from 0.02% to 0.05%, and to 0.15% on option premium and on exercised options, effective 1 April 2026.
The intent behind the change of STT in budget 2026 is to make frequent Futures and Options trading more expensive and discourage excessive speculation. The delivery-market STT is broadly left unchanged.
Is there a direct impact on ULIP fund performance?
Most equity-oriented ULIP funds primarily buy and sell cash equities. Because the hike is focused on F&O, a plain equity fund inside a ULIP plan may see little impact. The impact grows when an insurer fund uses futures for hedging, runs an arbitrage style, or turns over derivatives frequently.
Take for example, arbitrage mutual funds, which repeatedly use futures to capture small spreads. Estimates show arbitrage fund returns could fall by roughly 0.20% to 0.40% annually due to higher futures STT. If your insurer runs a similar approach, the STT update in budget 2026 could be felt in net performance.
Will the STT update impact me in the long term?
In the short term, STT in budget 2026 raises friction for derivative-heavy strategies and can shave returns in arbitrage-like approaches.
In the long term, your ULIP plan‘s outcome is dominated by asset allocation, fund choice, and other aspects. If your fund is not trading derivatives often, this STT change becomes a minor difference across 10 to 15 years.
Should you switch from ULIP to traditional plans?
Know that STT at 0.001% can be levied on the transaction value in certain cases involving equity-oriented units for eligible policies (after Feb 2021), when money is received due to surrender, sale, redemption, maturity, or partial withdrawal. This is separate from the F&O hike, but it shows why you should judge total costs.
But switching out of a ULIP only because of the STT hike may rarely be a smart move. Before you act on the STT update in budget 2026, check what you lose by surrendering. Charges and timing mistakes can cost more than the tax change.
STT: ULIPs and mutual funds
After the STT update in budget 2026, the tax rules still matter more than the trading-tax headline.
ULIP taxation**
- Premiums paid for a ULIP plan can qualify for deduction under Section 80C within the overall ₹1.5 lakh limit. They are subject to certain conditions, such as the premium being within sum assured thresholds.
- Maturity proceeds can be exempt under Section 10(10D) if rules are met, including premium under 10% of sum assured, and for policies issued on or after 1 February 2021, aggregate annual premium staying within ₹2,50,000 in a year.
- If your ULIP does not qualify for Section 10(10D), proceeds are treated as capital gains.
Mutual funds
After STT in budget 2026, the main impact is still concentrated in strategies that use derivatives frequently, and not long-term equity funds that hold stocks for longer periods.
Budget 2026 did not introduce new insurance-specific tax shocks for ULIPs. Nor did it bring an changes to a ULIP’s tax benefits. This is a period of relative stability after recent years clarified and aligned market-linked insurance tax treatment. For most investors, the STT update in budget 2026 is not a reason to abandon a good ULIP plan. It is instead meant to be treated as a reminder to prefer lower-turnover strategies and make product decisions based on protection needs and time horizon.
** Tax exemptions are as per applicable tax laws from time to time.
