Amid surge in retail participation, STT collection set to double in Q1FY22

Strong first quarter could help STT mop-up surpass Budget Estimates for FY22, say govt officials

The Securities Transaction Tax (STT) collection for the June quarter is set to be more than double from the year-ago period. Buoyancy in the stock markets, coupled with increased retail participation, has boosted trading activity and helped shore up STT.

According to government sources, the revenue department has collected Rs 5,178 crore STT for the first quarter of 2021-22 (FY22) until June 16. The collection for the same period last year stood at Rs 2,408 crore

The government had set the STT target of Rs 13,000 crore in Budget Estimates (BE) for FY22. This was lowered to Rs 12,000 crore in Revised Estimates (RE). However, looking at the first quarter figures, the official expects tax collection to surpass even BE for the financial year.

The STT rate for delivery-based trades is 0.1 per cent, while that on intra-day trades is 0.025 per cent in the equity cash segment. Similarly, the tax levy on derivatives trade is between 0.01 per cent and 0.05 per cent, unless an option contract is exercised.

Therefore, STT collection is directly linked to the trading turnover on the National Stock Exchange (NSE) and the BSE.

Average daily turnover (ADTV) in April for the cash segment stood at Rs 74,242 crore, up 4 per cent over the previous month. In May, the ADTV jumped a further 13 per cent to Rs 83,860 crore.

On the derivatives side, the stock futures and options have reported month-on-month increase in April and May, while index futures volumes have taken a hit.

Broking officials said STT collection going ahead could be impacted as the new peak margin norms are weighing on volumes.

The 75 per cent peak margin norms have come into effect from June 1. Broking industry expects 10-15 per cent hit on volumes as leveraged bets in the system will reduce significantly on account of the new norms. Industry players say the biggest impact could be left on derivative futures' volume followed by cash market volumes. They say traders could shift to riskier options trading.

The norms are being implemented in phases starting December 2020. Between December 2020 and February 2021, traders were supposed to maintain at least 25 per cent of the peak margin. This margin was raised to 50 per cent between March and May. The same will be raised to 75 per cent between June and August. And finally to 100 per cent September 1 onwards.

The tax collection from stock trading has been seeing upward momentum since last year, when the pandemic broke out. The surge in the markets have led to unprecedented surge in new account openings.

In FY21, the Centre had collected a total Rs 11,431 crore STT, which is 40 per cent more than what it collected in FY20. STT collection in FY20 stood at Rs 8,140 crore.

Typically, collections decline during weak market conditions or a fall in stock prices. For instance, STT collections dropped below Rs 500 crore in FY13 amid a downturn in the market due to the taper tantrum.

STT is the part of the government's total direct tax collection, which stood at Rs 2.33 trillion (net collection) between April and June 16, a growth of 86 per cent compared to previous year. Advance tax from corporations and individuals are also significantly higher compared to last year. At Rs 60,244 crore in the first quarter of the current fiscal, the official figures suggest that advance tax dues on June 15 from corporates showed growth of 51 per cent.