Parking money in securities market, will attract uniform stamp duty across India by this 1st July.

1-July-2020,

Stamp duty will be charged uniformly irrespective of the state of residence effective from July 1st, 2020. Until now, stamp duty was charged at different rates based on your resident state. Read official Notification

The amendment in the Indian Stamp Act, 1899 which casts an obligation on stock exchanges, depositories, and authorized clearing corporation to collect stamp duty on transfer of securities like equity shares, debentures, and mutual fund units comes into effect from July, 1, 2020.

State governments currently impose stamp duty on financial instruments at different rates. Brokers and other intermediaries are responsible to collect stamp duty on transactions and deposit it with the state under the current framework. Now, stock exchanges, depositories as well as the Clearing Corporation of India will collect stamp duty on any issue, transfer or sale of a security.

How does it compare to old rates?

The new rates are only on the buy-side and not on both buy and sell-side. So stamp duty costs for most of you will reduce by over 50%. Active traders who were residing in states which had a cap on maximum stamp duty per day per contract note, will not enjoy the benefit of the cap going forward, hence will be negatively affected. There was no stamp duty earlier for offline transfer of shares or mutual funds using DIS (delivery instruction slip), now there will be based on the consideration amount entered on the DIS slip at the same rates as delivery trades (0.015% or Rs 1500 per crore on buy-side).

How does it affect Mutual fund transactions?

Stamp duty of 0.005% will be charged on your mutual fund purchase. The applicable stamp duty will be adjusted with the units allotted to you rather than being separately charged.

Assume you intend to invest Rs.10,000/- in a fund, then the applicable stamp duty is – Rs.10,000 * 0.005% = 0.5 (50 Paisa) 

Hence your investment amount is adjusted for stamp duty and gets reduced to Rs.9,999.5/.

The number of units you get is – Rs.9,999.5 / 10 = 999.95.

How it will make your return squeeze?

Parking money with the liquid mutual fund through a lump sum or systematic investment plans (SIPs) stamp duty of 0.005% will be levied on every mutual fund purchase. The lower the holding period of investments, the higher will be the impact. 

State-wise stamp duty rates will be replaced with following rates prescribed under the Finance Act, 2019 for transaction in securities;

• Issue of a security: 0.005%
• Transfer of security on delivery and non delivery basis: 0.015% and 0.003%
• Equity and commodity futures: 0.002%
• Equity and commodity options: 0.003%
• Currency and interest rate derivatives: 0.0001%
• Other derivatives: 0.002%
• Repo on corporate bonds: 0.00001%
• For debentures, stamp duty will be charged at 0.005% on issuance and 0.0001% in case of transfer and re-issue. 

However, no stamp duty will be charged on government securities. Redemption of mutual fund units not attract stamp duty but switching in mutual funds will.

Tax will be collected by Stock exchange, while CCIL notified as a collection agent for over-the-counter -OTC derivative transactions and non-demat transactions in mutual funds. These collection agents will transfer the stamp duty to the relevant states.

-Jignesh Desai