Tax Tilt Encourages Options Speculation

India’s current securities transaction tax treats futures as taxed on the full notional value while options are taxed on the premium, creating an effective price wedge that can discourage institutional hedging via futures and inadvertently incentivize retail speculation in options. That micro‑design choice can shift market structure, increase tail risk among retail investors, and reduce the hedging efficiency of India’s derivatives markets. — The tax‑design distortion has system‑level consequences for financial stability, investor protection, and the effectiveness of market regulation in India.