It is well known that the pandemic turned out to be a boon for Indian stock market with participation increasing sharply in 2020. The influx of new investors continued through 2021, resulting in much higher turnover on stock exchanges in 2021 when compared with 2020. The revenue would be quite happy with this, since it has led to much higher-than-expected securities transaction tax (STT) collections for FY22. STT collection for 2020-21 was revised to ₹12,000 crore in the last Union Budget, quite close to the actual collection of ₹12,374 crore for 2019-20. The resilience in stock market activity in the early months of the pandemic provide optimism about stable tax collections in FY21. The Budget Estimate for 2021-22 was, however, quite conservative with projected collection of ₹12,500 crore for this fiscal year. The Finance Minister clearly did not anticipate the stock market boom that was unleashed in the first nine months of 2021-22 with the benchmarks hitting record highs and stocks delivering bounteous returns to investors. This stock market boom resulted in STT collection of ₹19,737 crore between April and November 2021. The collections for the first nine months have already exceeded the full year budget target by 57 per cent.

Why the surge?

The surge was largely due to the dramatic increase in turnover on the exchanges. Average daily trading turnover in the cash segment of NSE was ₹36,432 crore in 2019-20. It almost doubled to ₹61,839 crore in FY21. Monthly average in FY22 exceeded ₹70,000 crore in many months. If we look at the rate of STT charged, investors have to pay STT of 0.1 per cent in the cash segment both while purchasing as well as while selling stocks. The STT in the derivative segment is much lower. With many new investors resorting to day trading in the cash segment of the exchanges, the STT collections would also have surged. The equity derivative segment of NSE has also been witnessing intense activity. While total turnover in stock futures and option in 2020-21 was ₹64,36,18,108 crore, it has surged to ₹125,68,36,101 crore until January 24, 2022. This amounts to an increase of 95 per cent. With participation of retail investors continuing to be robust in both cash and derivative segments of stock exchanges, STT collections could stay elevated in the 2022-23 as well.

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