The government has approved single stamp duty norms for capital market transactions. According to a press release issued by the government, the new stamp duty rules will become effective from July 1st, replacing the existing practice of different stamp duty slabs for different states.
In the previous tax system, different states could decide different tax rates on speculative transactions, prompting many brokers to indulge in tax arbitraging practices by basing their offices in states where tax barriers were low.
“Since some states levied very low rates on speculative trades and there was a tax arbitrage to be had by basing your office in such states. This arbitrage will now go due to a uniform rate across the country,” mentioned Deepak Jasani, Head – Retail Research, HDFC Securities.
This new change will eliminate any difference in tax rates and benefit investors in high tax states.
The uniform stamp duty regulation was initially proposed in January but got deferred to April and then to July. Under the new regime, several new propositions are made which are intended to simplify stock buying and selling without impacting investor’s sentiment by a great degree. Changes in stamp duty aim at removing any discrepancy in the current system while lowering the costs of collection and jurisdictional disputes. In its declaration, the Finance Ministry has mentioned,
“The system will help develop equity markets and equity culture across the length and breadth of the country, ushering in balanced regional development.”
Highlights of proposed uniform stamp duty
The new proposal is significantly different in many aspects from the existing stamp duty policy. We have listed the key differences to make it easier for you to compare the two.
- Stock exchanges will collect the stamp duty and deposit it with the central government. the central government will then distribute the collected revenue among states
- Earlier there was no stamp duty levied on off-market transactions on DEMAT mode. But the new set-up will plug the loophole by imposing 0.25 percent stamp duty on physical transfer of all unlisted shares in DEMAT mode
- The new system will replace the practice of imposing dual stamp duty both on the buyer and seller. From now on, stamp duty will be levied only on the buyer
- Unified stamp duty notification clarifies that stamp duty will be collected in the state where the buyer in the transaction is located, thus ending the century old ambiguity regarding the origin state of stamp duty on a transaction
- Measures are also mentioned to simplify the existing stamp duty on stocks collection process. Earlier brokers had to register under different states to collect and pay stamp duty forwards, but under the new norms, tax collection and payment has been centralised and freed brokers from the additional burden
From July 1st, stamp duty rates on debentures, DEMAT transfers, futures, options, government securities, and currencies will change along with that of interest rate derivatives and corporate bonds. It is quite a significant shift from the existing system. So, how will it impact you as an investor? Well, the new policy is expected to simplify the investment process and bring in more transparency to it with one tax rate across the country. In describing the uniform stamp duty rates, Rajeev Srivastava, Chief Business Officer at Reliance Securities, mentioned,
“Uniform stamp duty rates and its centralised collection is a welcome move by the government as it will not only reduce the hassle at the brokers’ end but will also provide a level playing field to all customers across the states.”