The market boom of 2021, now showing in STT receipts

STT collections as on 2 February stood at ₹19,220 crore, compared to the budget estimate of ₹12,500 crore, and the revised ₹20,000 crore announced in the latest Union budget, data accessed by Mint showed. It is a growth of nearly 48% over the corresponding period last year, when the STT mop-up stood at ₹13,000 crore. STT collections jumped 30.2% from a year earlier during the February and March period of FY21 to touch ₹16,926 crore for the full year, but the revised estimates for FY22 imply a decline of 80% in the last two months of the fiscal. Collections have soared during the pandemic as more retail investors entered the market.

“The markets have been overheated post-covid. More retail investors are investing in the stock market. Also, there is positive sentiment around economic recovery, which is aiding higher-than-expected revenues,” said a government official.

Queries sent to a Central Board of Direct Taxes spokesperson remained unanswered till press time.

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

According to capital markets data provider Prime Database Group, shareholding of retail investors in all listed companies on the National Stock Exchange (NSE) reached an all-time high of 7.32% at the end of the December quarter, compared to 6.90% in the corresponding period last year and 7.13% at the end of the September quarter.

However, the government has estimated STT mop-up at a flat ₹20,000 crore for FY23 as well. While the numbers appear underestimated, it highlights the government’s strategy of budget management, where higher-than-expected revenues act as a buffer.

“Even though the markets may remain flat next year or grow by 10-15%, but the number of market transactions should increase significantly. So, I am surprised the government has kept the STT collections estimate for next fiscal year flat,” said Rajesh H. Gandhi, partner, Deloitte India.

At an industry event on Wednesday, revenue secretary Tarun Bajaj pointed to the rise in expenditure. “In spite of the fact that revenue buoyancy is so much, my fiscal deficit will almost be the same as mentioned in the budget estimate. Otherwise, fiscal deficit should have gone down. That is not happening because the extra expenditure has been lifted by the extra revenue that has come,” said Bajaj.

According to data from the Securities and Exchange Board of India, investors opened 10.2 million demat accounts in the three months ended December, the highest in any quarter.

“We are not expecting the bull run to come to a halt in FY23, especially considering the sharp rebound of Indian economy. Investor confidence is soaring high, and the momentum is expected to maintain,” said Rakesh Nangia, partner, chairman, Nangia Andersen India.

Further, talks of the government planning to review the capital gains tax regime with an aim to simplify the same will add to the investment trend, he added. “Participation of new investors is impressive in both cash and derivative segments of stock exchanges; hence, STT collections are expected to be higher in FY23,” said Nangia.