Net direct tax collections surged by over 16 per cent between April 1 and November 17, the Income Tax Department reported on Wednesday. Significantly, Securities Transaction Tax (STT) collections have exceeded Budget Estimates by over 8 per cent.
Meanwhile, collections through advance tax after three instalments grew by over 20 per cent. With the latest number showing collections exceeding 71 per cent of budget estimates, the Finance Ministry hopes to meet the budget target for net direct tax collection of ₹22.07 lakh crore and exceed the target by a notable margin. This, along with good growth in Goods & Services Tax (GST), is expected to help the government push fiscal deficit lower than the budget estimate of 4.9 per cent for the current fiscal.
Though the Income Tax Department has not given any reasons for the rise in collection, it is believed that ease of compliance and the use of technology aided in the exercise. At the same time, the rise in income also facilitated higher income tax payments by individuals. Notwithstanding companies’ profitability under pressure, advance tax payment by corporations recorded over 16 per cent growth.
STT
Even before the end of the nine-month period, STT collection exceeded the budget target of ₹37,000 crore. Data released by the Income Tax Department shows that between April 1 and December 17, STT collection rose to over ₹40,000 crore as against ₹21,500 crore during the corresponding period of the last fiscal year, showing a growth of over 85 per cent.
During the last fiscal year, the budget estimate was ₹27,625 crore, which was revised to ₹32,000 crore, and the actual is expected to be more than that. One reason for higher collection is the long bull run and the heavy stock market trading volume. At the same time, stock-based derivative trading is also increasing, contributing to the collection.
Rates on stock-based derivatives (future and option) have been increased for the current fiscal. “Security Transactions Tax on futures and options of securities is proposed to be increased to 0.02 per cent and 0.1 per cent respectively,” Finance Minister Nirmala Sitharaman announced in her budget speech on July 24. This is further expected to boost the collection.
STT was implemented in 2004 by then Finance Minister P. Chidambaram during the first term of the Manmohan Singh Government (2004-09). This tax was intended to combat capital gains tax evasion. STT is charged on the value of securities (excluding commodities and cash) and mutual funds.
It is governed by the Securities Transaction Tax Act, which lists the various types of securities transactions that are taxable. These include equity, derivatives, and units of equity-oriented mutual funds. STT also applies to unlisted shares sold under an offer for sale to the public that is subsequently listed on stock exchanges.