Uniform Stamp Duty On Capital Market Transaction

The Stamp Act, 1899, was amended vide the Finance Bill, 2019, introducing the application of Uniform Stamp Duty for all the financial securities transactions. The said amendment was earlier going to be effective from 9

th January 2020 but was later shifted to 1st April 2020. However, due to the occurrence of pandemic COVID-19 and subsequent lockdown, the date of implementation was further extended to 1st July 2020. As per the earlier position, the different states were allowed to collect different stamp duty rates. Noticeably, the previous system of stamp duty collection led to multiple rates for the same instrument, which resulted in multiple incidences of duty. Importantly, the stamp duty used to be levied on both the buyer and the seller. From 1st July 2020, the stock exchanges will collect the stamp duty for trading in securities at a unified rate. Further, the stamp duty will be collected only from the buyer of the securities. The stock exchanges will deposit the proceeds with the Centre, and the Centre will eventually divide amongst the states where the trade has taken place. The new harmonized, rationalized, and centralized stamp duty collection system, with unified rates, will minimize collection cost and enhance the productivity of revenue however, the same will turn out to be a little bit expensive for the buyers. The present article highlights the said system of Uniform Stamp Duty On Capital Market Transactions.

Applicable rates for different capital market instruments

The implementation of the uniform stamp duty will be applicable on the transfer of shares, debentures, future, currency, options, and other capital market instruments. The rates applicable for different capital market instruments are tabulated hereunder-

Sr. No.	Instrument	Applicable rate
1	Issue of security (other than debentures) including units of mutual funds	0.005% or INR 500 per crore on buy-side
2	Transfer of security on the delivery basis (other than debentures) including the transfer of units of mutual funds	0.015% or INR 1500 per crore
3	Transfer of security on non-delivery basis (other than debentures)	0.003% or INR 300 per crore
4	Derivatives – Futures (commodity and equity)	0.002% or INR 200 per crore on buy-side
5	Derivatives – Options (commodity and equity)	0.003% or INR 300 per crore on buy-side
6	Interest rate derivatives and OTC currency	0.0001% or INR 10 per crore on buy-side
7	Other derivatives	0.002%
8	Repo on corporate bonds	0.00001%
9	Delivery equity traders (equity delivery)	0.015% or INR 1500 per crore on buy-side
10	Intraday equity traders (equity intraday)	0.003% or INR 300 per crore on buy-side
11	Bonds	0.0001% or INR 10 per crore on buy-side

It is important to note that the rate applicable for Government securities is 0%.

Conclusion

With effect from 1

st July 2020, unified rates will be levied, across the country, on all the capital market transactions. Stock exchanges or authorized clearing corporations and the depositories will now become the collecting agents. Further, unlike erstwhile practice, now, only the buyer of the securities will be liable to pay the stamp duty. Issue and re-issue of debentures, transferring any equity and equity related securities, transferring debenture against off-market trade or delivery trades are some of the new segments which will now attract stamp duty.

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Frequently Asked Questions

Common questions about Uniform Stamp Duty on Capital Market Transactions.

The uniform stamp duty on capital market transactions is a new harmonized and centralized system of collecting stamp duty at unified rates for various capital market instruments like shares, debentures, futures, options, and others. It aims to minimize collection costs and enhance revenue productivity.

The uniform stamp duty system was initially planned to be implemented from 9th January 2020, but due to the COVID-19 pandemic and subsequent lockdown, it was further extended and finally came into effect from 1st July 2020.

Under the new system, stock exchanges or authorized clearing corporations and depositories will act as collecting agents for the stamp duty. The duty will be collected only from the buyer of securities at unified rates, and the proceeds will be deposited with the Central Government, which will then divide them among the states where the trades took place.

The article provides the applicable stamp duty rates for various instruments like shares (0.015% or INR 1500 per crore), debentures (0.005% or INR 500 per crore), futures (0.002% or INR 200 per crore), options (0.003% or INR 300 per crore), interest rate derivatives (0.0001% or INR 10 per crore), and so on.

Previously, different states were allowed to collect different stamp duty rates, leading to multiple rates for the same instrument and multiple incidences of duty. The uniform system aims to resolve this issue by introducing unified rates across the country, collected centrally by stock exchanges.

Under the uniform stamp duty system, only the buyer of securities will be liable to pay the stamp duty, unlike the earlier practice where both the buyer and seller were required to pay the duty.

According to the article, the stamp duty rate applicable for government securities is 0% under the uniform stamp duty system.

While the new system aims to minimize collection costs and enhance revenue productivity, it may turn out to be a little more expensive for buyers of securities as they will have to bear the entire stamp duty cost.

The uniform stamp duty system is applicable to the transfer of various capital market instruments like shares, debentures, futures, currency options, and other derivatives, as well as the issue of securities (excluding debentures) and units of mutual funds.

The implementation of the uniform stamp duty system was initially planned for 9th January 2020 but was delayed twice due to the COVID-19 pandemic and subsequent lockdown, eventually coming into effect from 1st July 2020.