In a bid to cushion the blow following the steep hike in the securities transaction tax (STT) for the futures and options (F&O) market, the Indian government also unveiled a proposal that tweaks the way goods and services tax (GST) applies to intermediary services such as stockbroking.

The Finance Bill 2026 seeks to omit clause (b) of sub-section (8) of Section 13 of the IGST Act. The Budget memorandum stated, "Clause (b) of sub-section (8) of section 13 of the Integrated Goods and Services Tax Act, 2017 is being omitted so as to provide that the place of supply for 'intermediary services' will be determined as per the default provision under section 13(2) of the IGST Act."

Earlier, Indian intermediaries such as stockbrokers serving overseas clients, including foreign portfolio investors (FPIs), faced an 18% GST liability even on cross-border transactions, as the law treated the place of supply as the location of the service provider.

Following the removal of this provision, the place of supply will now be determined by the location of the client. Consequently, for Indian stockbrokers serving FPIs based abroad, the place of supply shifts outside India.

Such services can now qualify as exports and be zero-rated under GST—a move that could reduce service costs for Indian broking firms servicing FPIs. The only caveat is that payments must be received in convertible foreign exchange or in permitted Indian rupees, which are treated as deemed exports.

Charanya Lakshmikumaran, Executive Partner, Lakshmikumaran & Sridharan Attorneys, said, "In a welcome move aligning with the 56th GST Council's recommendation, the Finance Bill, 2026 proposes the omission of Section 13(8)(b) of the IGST Act, allowing intermediary service providers to foreign entities to qualify as 'export of service'. This amendment shifts the place of supply to the recipient's location, thereby removing the ambiguity and GST burden."

STT hike

The government yesterday also announced a hike in STT for the Indian derivatives market, which resulted in a sharp selloff on Dalal Street — the worst decline on Budget day in six years.

The Finance Minister Nirmala Sitharaman said that the STT hike is with a view to discouraging small investors from speculative trading in derivatives. In her Budget speech, Sitharaman said the STT on futures contracts will be raised to 0.05% from 0.02%. Meanwhile, STT on options premiums and exercise of options are both proposed to be raised to 0.15% from the present rate of 0.1% and 0.125%, respectively.

While Sensex and Nifty had cracked over 2% each following the announcement, analysts expect limited impact from this move.

"India's retail participation and broader financialisation are still in the early stages. Marginal changes in transaction costs do not alter the long‑term behaviour of participants in the capital markets," said Amit Majumdar, Group Chief Strategy Officer, Angel One.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.