What do the latest stamp duty rules mean for investors?

thumbnail What do the latest stamp duty rules mean for investors What do the latest stamp duty rules mean for investors?

It was a full 3 months late. The new stamp duty rules were to take effect on April 01, 2020. However, due to the uncertainty and confusion over the COVID-19 situation and the lockdown, the implementation of stamp duty changes was put off to July. Come July 01 and the new stamp duty rules are effective with immediate effect. Here is a quick take on what this implies and how it will be charged as well as what are the inclusions and the exclusions from this rule.

How do the new stamp duty rules apply?

Till June 30, there was no centralized stamp duty. Each state government was entitled to put stamp duty at its own rates. For a national level business like broking, this created a lot of uncertainty. Another major shift is that demat transactions will also be liable to stamp duty henceforth. That means; if you buy and sell shares on demat, whether by market trades or by off-market trades, there will be stamp duty payable at the extant rates on such transactions. Under the Indian Stamp Rules 2019, the onus of collection of stamp duty will vest with the clearing corporation of the stock exchange (BSE or NSE) and in case of off-market transactions it will vest on the depository to levy the stamp duty. Stamp duties will be collected centrally and transferred to the respective state governments based on the domicile of the customer.

Stamp duty cash market and F&O market

All transactions settled through the exchange clearing corporation will be subject to stamp duty at standard rates. For example, equity delivery will attract stamp duty of 0.015% while equity for intraday will attract stamp duty at 0.003%. While G-Secs will be free of stamp duty, debentures and private sector bonds will be subject to stamp duty at 0.0001%.

In the F&O segment, the equity futures will attract stamp duty at 0.002% on notional value while the equity options will attract stamp duty at 0.003% on the premium value. The rates will be lower at 0.001% for currency derivatives. In all the above cases, the stamp duty will be payable by the buyer and there will be no stamp duty levied on the seller.

Will stamp duty be levied on buybacks and open offers?

Since these are also transactions on the stock exchange, they will also be subject to stamp duty at uniform rates. For example, an offer for sale (OFS) will attract stamp duty at the rate of 0.015% and will be paid by the offeror or the seller. In the case of takeovers, buybacks and delisting proposals, also, the stamp duty will be payable at the rate of 0.015% and here again the duty will be payable by the seller or the offeror.

There is a question about how the domicile for the stamp duty will be determined. In the case of client trades executed by the broker, the domicile of the client based on the data uploaded by the trading member will be considered. The domicile of the member will only be used if the client state is not available. In the case of proprietary trades, the domicile of the trading member as per the GST certificate will be considered.

Understanding finer points of stamp duties

Here are some finer points that clients must understand about stamp duties.

  • The price value considered for stamp duty will be the actual traded value for equities, notional value for futures and the premium value in case of options.
  • In the case options go into delivery settlement, then the final price of settlement will the benchmark price for calculating the stamp duty.
  • On F&O expiry date, the stamp duty will be calculated based on the netting process. Here is how it will work. If a trader has 1200 quantity of long futures on a stock and 800 quantities of short options, then only 400 quantities will be treated as delivery and stamp duty of 0.015% will be applied. On the balance 800 quantity, non-delivery rate will apply.
  • All mutual fund transactions on the buy side will also attract stamp duty and such stamp duty will now have to be collected directly from the AMC.

Apart from being a source of revenue, this is also likely to create a better audit trail of transactions.

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