STT collections surge in buoyant market; govt rakes in Rs 111 bn in 2017-18

Securities transaction tax is levied on all stock market transactions. The tax is in the range of 0.017% and 0.125% of the transaction amount

Buoyancy in the stock markets has helped the government collect a record amount from the securities transaction tax (STT) in 2017-18.

According to an official with the income tax (I-T) department, the STT collection for the fiscal year stood at Rs 111.23 billion, an increase of 24 per cent over 2016-17. The amount is also 43 per cent higher than the Revised Estimates of Rs 77.7 billion.

Introduced in 2004, the STT is levied on all stock market transactions. The tax is in the range of 0.017 per cent and 0.125 per cent of the transaction amount.

The increase in STT collection is because of a high trading turnover, particularly in the derivatives segment. Derivative volumes on the National Stock Exchange (NSE) jumped 75 per cent in 2017-18 over the previous fiscal year. Combined cash volumes on the NSE and the BSE, too, rose 38 per cent in 2017-18.

The market has largely been on the upmove between April 2017 and January 2018. In the past two months, however, stocks have entered a correction mode. Despite the correction, trading turnover has been on the rise.

The STT collection is closely linked to stock market conditions. For instance, the collection had dropped below Rs 50 billion during 2012-13 amid a downturn in the market. Since then, collection has been on the rise due to an upward bias in the market. The average collection for the past eight fiscal years has been Rs 67 billion.  An I-T official termed this year as a “breakthrough” one for STT collection. He added that Mumbai and Chennai saw an unprecedented surge in STT collection.

Market players said a high share of delivery-based trades also contributed to higher collection. The STT rate for delivery-based trades is 0.1 per cent, while that on intra-day trades is 0.025 per cent. Similarly, the tax levy on derivatives trade is between 0.01 per cent and 0.05 per cent, unless an option contract is exercised.

“The STT has definitely made a significant contribution in the overall tax collection due to increased activity in the stock markets. The government’s continued efforts to channel more household savings towards financial assets, together with the continued interest in Indian markets by institutional investors, could result in high levels of activity in equity markets,” said Sai Venkatesh, partner, KPMG India.

The Centre expects to collect Rs 110 billion STT in 2018-19. Experts said the target is achievable if market conditions stay healthy. If the recent correction continues, it could push investors away from the market and hurt volumes.

The Centre can expect higher tax collection from stock markets, following the recent reintroduction of the long-term capital gains (LTCG) tax. Starting April 1, profits made on sale of equity shares held for over 12 months will be taxed at 10 per cent.

Experts said the government considered stock markets as an important source of tax revenue, given the enhanced activity and value creation.

“Despite the reintroduction of the LTCG tax, there is a sense of optimism as the participants have already factored in the impact of both the taxes,” said Venkatesh.

According to recent data, the total direct tax (net collection) up to March 28 stood at Rs 9.28 trillion against the revised target of Rs 10.05 trillion. Mumbai and Delhi contributed Rs 2.96 trillion and Rs 1.27 trillion, respectively, followed by Bengaluru, which collected Rs 1 trillion.