Securities transaction tax collection up 5% on higher derivatives trade

Tax payouts from dividend distribution tax are up 2%.

The weak markets have not had an impact on the government’s securities transaction tax (STT) kitty, which went up about 5 per cent year-on-year (YoY) in the current fiscal year to date.

According to an official in the Income Tax Department, STT collection stood at Rs 11,247 crore for fiscal year 2019-20 (FY20), until March 15, against the targeted Rs 12,500 crore. The department is hoping that the target will be crossed.

The reason for the higher STT is heightened volumes in the futures and options segment during April 2019 to January 2020, even as volumes fell in February. So far this fiscal year, equity derivatives turnover have gone up 43 per cent, while overall market turnover across both cash and derivatives segments was up 39 per cent.

Even tax payouts from dividend distribution tax (DDT) are up 2 per cent because of changes in the tax structure from April 1, which require firms to shell out more on dividends in the next fiscal year.

Typically, collections had declined during weak market conditions or fall in stock prices, but this year’s activity on the futures and options front is helping tax collections. For instance, collection dropped below Rs 500 crore in FY13 amid a downturn in the market. Since then, collection has been on the rise thanks to an upward trend in the market. In FY19, the government collected Rs 11,528 crore from STT, of which Mumbai contributed Rs 11, 235 crore.

The market performed relatively well between April 2019 and January 2020, but in February, the sharp sell-off sparked by the coronavirus outbreak pushed the Nifty and Sensex into bear territory, eroding billions of rupees of investor wealth. Total derivatives trading volume fell 22 per cent in February, while in the cash segment total volumes were down 2 per cent.