Uniform stamp duty on securities market instruments from July 1

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SME Times News Bureau | 30 Jun, 2020
The amendments in the Indian Stamp Act, 1899, to bring about uniformity of the stamp duty on securities across states will come into effect from Wednesday, July 1.

The Centre has created the legal and institutional mechanism to enable states to collect stamp duty on securities market instruments at one place by one agency, through the stock exchange or clearing corporation authorised by it or by the depository on one instrument, an official statement said.

The amendment was brought for ease of doing business and bringing in uniformity of the stamp duty on securities across states thereby building a pan-India securities market, it said.

The amendments to the Stamp Act, 1899, introduced in the Finance Bill, 2019, introducing the centralised system of stamp duty with a unified rate for all financial securities transactions were to become effective from January 9 first but it was later shifted to April 1. On March 30, the government decided shift its implementation to July 1 due to Covid-19 related lockdown across the country.

As per the amendments and the new notification, stock exchanges will now collect stamp duty for trading in securities at a unified rate from July 1 and deposit the proceeds with the Centre, which will then divide it among states where the trade took place.

At present, market participants collect stamp duty at rates fixed by the state where the trade takes place and deposit it with the local government. This created a complex system with multiple tax rates and differing regulations in different states, posing a challenge to settle deals.

Under the amended provisions while stock exchanges or clearing agencies would collect duty on securities transactions (sale and purchase of shares) and deposit it with the centre, for transactions that don't happen on the stock exchange (off market transactions) platform, the depositories would collect stamp duties.

Under the unified stamp duty system the rate of duty has been proposed at 0.0001 per cent for transfer and reissue of debentures while rates varies from 0.0005 per cent to 0.015 per cent for other financial securities transactions rated to shares, or derivative products.

"The relevant provisions of the Finance Act, 2019 amending the Indian Stamp Act, 1899 and the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 were notified simultaneously on 10th December, 2019 and these were to come into force from 9th January, 2020, which was later extended to 1st April, 2020 vide notifications dated 8th January, 2020," a Finance Ministry statement said.

Considering the stakeholder requests, the nationwide lockdown and in line with the relaxations given on other statutory and regulatory compliance, the date for implementation was further extended to July 1. it added.

As per the government, this rationalised and harmonised system through centralised collection mechanism is expected to ensure minimise cost of collection and enhance revenue productivity.

Further, this system will help develop equity markets and equity culture across the length and breadth of the country, ushering in balanced regional development, the statement added.

Sector experts, however, say that with the implementation of the amendment, investments in New Fund Offers (NFOs) or primary issues either through direct investments or investments through indirect routes like Mutual Funds (MFs) would become expensive.

Post the implementation, stock exchanges or authorised clearing corporations and the depositories will be the collecting agents.

For all exchange based secondary market transactions in securities, stock exchanges shall collect the stamp duty, and for off-market transactions, which are made for a consideration as disclosed by trading parties, and initial issue of securities happening in demat form, depositories shall collect the stamp duty.

The regulators, RBI and SEBI have been authorised by the Centre under the Indian Stamp Act, to issue clarificatory circulars and operational guidelines on specific issues to ensure smooth implementation from July 1.