Rationalized charges on securities with uniform stamp duty

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The government has announced to implement uniform stamp duty on transfer of shares, debenture, and investment in other financial instruments like mutual funds, new fund offers of MF schemes including systematic investment plans (SIPs), and systematic transfer plans (STPs) from July 1, 2020. These adjustments will serve to promote ease of doing business and bring in the uniformity of the stamp duty on securities across the states. “From the investors’ point of view, these modifications are neutral as those paying lower than current charges get to pay marginally higher while those paying higher than new rates get to pay lower. So, in effect it’s neutral,” Narendra Solanki, Head Fundamental Research, Anand Rathi Shares and Stock Brokers.

The changes were to be executed from January 9, 2020, but was later extended to April 1 and then on the onset of nationwide COVID induced lockdown, these were postponed to July 1. “Uniform stamp duty will have a very marginal impact on the overall transaction cost for the customers especially if they are long term investors as compared to short term investors. This will provide another motive to invest in equities for a long-term extent,” Rajeev Srivastava, Chief Business Officer at Reliance Securities.

Previously, each state had a different stamp duty rate, which implies that two broker companies in two different states were charging differently. Now that rates are made alike and there are no state-specific differences in the new structure, it is rationalized. This rationalized system through a centralized collection mechanism is presumed to ensure the minimization of cost of collection and improve revenue productivity.

The existing system of collecting stamp duty on securities market transactions directed to multiple rates for the same instrument, followed by jurisdictional disputes and multiple incidences of duty, whereby increasing the transaction costs in the securities market and disturbing capital formation, says the finance ministry statement. “Uniform stamp duty rates and its centralized collection is a welcome move by the government as it will not only reduce the trouble at the brokers’ end but will also provide a level playing field to all customers across the states,” assert experts.

As per the current situation, the stamp duty was payable by both seller and buyer. But now with the introduction of the new arrangement, it is levied only on one side that is it is payable either by the buyer or by the seller but not by both, except in case of a certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion.

Besides shares, the rate of stamp duty has been changed for debentures, transfer of Demat securities, futures, options, and government securities, among others. Also, the transfer of shares at the time of inheritance and gifts which make up for off-market transactions will also be charged now. “Further, this system will help improve equity markets and equity culture across the length and breadth of the country, ushering in balanced regional development,” the finance ministry statement added.

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