Mumbai: Advance tax payments made by 86 of the top 100 companies in India’s financial capital Mumbai rose just 3% for the quarter ending 31 March, dragged down by banks and finance companies. Still, manufacturing companies, led by auto and drug firms, have paid more tax, indicating that earnings are set to rise in the fourth quarter and that the economic recovery is well on track.

“Overall numbers suggest good corporate earnings," said Mohan K.R. Swamy, head of equity research at the Royal Bank of Scotland Plc’s Indian equity division. “Since the fourth quarter will have a lot of adjustments, these numbers cannot be extrapolated" for calculating profit figures.

He said banks and finance companies got hit by rising bond yields, which dented treasury profits and led to lower tax payouts. Bond prices fall when yields rise and banks are required to make good the difference between cost of acquisition and market price, known in accounting parlance as mark-to-market. The benchmark 10-year bond’s yield has risen from 7.58% in the beginning of January to 8%.

In the fourth quarter, State Bank of India—the country’s largest bank—was the highest advance tax payer in the Mumbai circle paying Rs1,857 crore, up 2.6% from a year ago.

Reliance Industries Ltd, India’s most valuable firm by market capitalization, paid Rs770 crore of advance tax, more than double what it paid a year ago.

Companies pay advance tax in four instalments before the end of each quarter, based on profit estimates. The figures are used as a proxy for financial performance estimates.

Graphic: Ahmed Raza Khan / Mint

The government has a direct tax target of Rs3.86 trillion this fiscal year, and needs to get Rs86,000 crore to meet revised Budget estimates.

Companies based in Mumbai, which contributes one-third of India’s total direct tax kitty, paid 10.4% tax more this year.

Also See | Details of advance tax for various companies chart 1, chart 2, chart 3

Apart from corporate income tax, securities transaction tax (STT) revenue has also risen. Although it contributes only around 1.5% of direct taxes, this reflects increased interest in the securities market.

According to the tax official, STT has risen 35% to Rs7,112 crore from Rs5,261 crore.

Of the 19 Nifty index members whose advance tax figures are available, 14 have paid more tax, with auto companies in the lead. Mahindra and Mahindra Ltd paid Rs236 crore and Tata Motors Ltd paid Rs115 crore, having paid nothing in the year ago. Bajaj Auto Ltd’s tax outgo rose 195% to Rs177 crore.

Among others, engineering firm Larsen and Toubro Ltd has paid Rs270 crore, a rise of 10%. Tata Steel Ltd’s tax outgo is Rs513 crore, up 26%. India’s top software firm Tata Consultancy Services Ltd paid Rs178 crore, up 236%, signalling tech firms are on a firm growth path.

“Foreign banks have not performed well in this quarter, but the auto sector and pharmaceutical companies have done well," the tax official said.

Citibank NA has seen the steepest decline in the absolute amount of advance tax paid. The bank paid Rs150 crore, compared with Rs1,010 crore a year ago. Hongkong and Shanghai Banking Corp. Ltd and Deutsche Bank AG saw their tax payments nearly halve.

Among Indian lenders, Bank of India paid 83% less while Dena Bank paid 60% less.

Those bucking the trend included ICICI Bank Ltd, India’s largest private sector lender, which paid 40% higher tax— 50 crore. HDFC Bank Ltd and Bank of Baroda paid 00 crore, a rise of 7% and 9%, respectively. IndusInd Bank Ltd paid 148% higher tax, although on a relatively lower base. India’s largest mortgage player Housing Development Finance Corp. Ltd’s tax payment rose 17% to 280 crore.