Overheated markets: STT mop up exceeds budget target by 40% by mid-December

The collection of securities transaction tax (STT) has exceeded the budget target for the full fiscal by nearly 40 per cent as of mid-December on the back of increased retail participation in the stock market.

The STT collection as on December 16 stood at Rs 17,329 crore as against the budget target of Rs 12,500 crore. In fact, it has posted a growth of 52 per cent over the previous year's mop up of Rs 11,430 crore. The STT collection is more than double that of the pre-Covid year 2019-20, when it stood at Rs 8,130 crore. 

"The markets have been overheated post Covid. More people are investing in the stock market. Besides, there is positive sentiment around economic recovery (which) is aiding higher than expected revenues like telecom industry and production-linked incentive schemes for the auto sector are all positive," said a government official.

The STT is a direct tax payable on the value of taxable securities transactions done through a stock exchange. It is levied at 0.1 per cent of turnover for delivery-based equity transactions, while for intra-day transactions, the STT for purchase is nil. For sale, STT is levied at 0.025 per cent of the turnover.

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STT collection	Rs (crore)
2019-20	8,130
2020-21	11,430
2021-22 (till December 16)	17,329
Source: Government data

The trend is also in line with robust corporation tax and personal income tax mop up.

The direct tax mop up, net of refunds, grew by 61 per cent and stood at Rs 9.45 lakh crore as on December 16 after the third installment of advance tax was paid.

This is about 85 per cent of the Rs 11.08 lakh crore direct tax revenue estimated in the budget for the current fiscal. The collections in the current fiscal are 40 per cent higher than in the corresponding period in 2019-20, the pre-Covid year.

Sectors like infrastructure, health, pharma, trade, chemicals, fertilisers and logistics are contributing to high revenue, said an official.

Experts attributed the high STT mop up to the increasing retail participation in the stock markets. Retail participants are those whose shareholding value is up to Rs 2 lakh.  

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Rakesh Nangia, chairman of Nangia Anderson India, said that there has been a massive inflow of funds in the capital market by all class of investors, resulting in the jump in collection of STT. If the trend continues, the government's STT collections may double this year.

According to data from Prime Database, the quantum of retail holding in NSE-listed companies crossed the 7 per cent mark for the first-time ever in the quarter ended June 2021. In value terms, retail holding touched a new high of Rs 16.18 lakh crore from the previous quarter's Rs 13.94 lakh crore, an increase of 16 per cent.

In August, NSE chief Vikram Limaye pointed out that the the stock exchange had witnessed over 50 lakh new investor registrations in the current fiscal, which was equal to 62.5 per cent of the total number of new investor registrations (80 lakh) last fiscal.