5 changes in stamp duty affecting you from 1st July

According to a press release put out by the Government today, certain changes in stamp duty on financial securities will go into effect from tomorrow, 1st July. The changes were initially slated to be implemented from January but were deferred to April and then July.

According to experts, they broadly fall into the following categories:

Uniform stamp duty across the country

Earlier different rates of stamp duty were specified by different states. “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," said Deepak Jasani, Head, Retail research at HDFC Securities.

"People in states with high stamp duty rates will benefit from the uniform stamp duty. On the other hand, proprietary or high frequency traders who opportunistically located themselves in low stamp duty states will pay more,” said Nithin Kamath, CEO, Zerodha.

Stamp duty on off-market transactions

According to experts, there was previously no stamp duty on off market transactions in demat mode. Mainly this involved the purchase and sale of unlisted shares but also other kinds of off market transactions like gifts of financial securities.

“The circular aims to standardize the collection of stamp duty and plug certain loopholes. Transfer of shares of unlisted entities in physical form invited a stamp duty of 0.25% but this could be circumvented by transferring the shares in a demat form. But now that’s not the case,” said Gautam Nayak, Partner, CNK and Associates LLP, a Mumbai based Chartered Accountancy Firm.

Stamp duty on buyer, not buyer and seller

“In the extant scenario, stamp duty was payable by both seller and buyer whereas in the new system it is levied only on one side,” the press release said.

Experts have pointed out that the new rules remove the double imposition of stamp duty on buyer and seller.

“Stamp duty will only be imposed once and that too on the buyer. Earlier it was on both the buyer and the seller,” said Dhruv Rawani, a Mumbai based Chartered Accountant.

Collection by stock exchanges, clearing corporations and depositories

Earlier brokers had to register with different states and collect and pay stamp duty to them, said Jasani. Now the exchanges will do the payment to states on behalf of brokers, reducing the burden on brokers.

“Now states must notify the new rates, process, and collection agency. Unless the states doesn't notify it, there can be ambiguity on the entire process as stamp duty is a state subject on issue of shares,” said Amrish Shah, Partner, Deloitte India.

Clarity on which state will collect the stamp duty

“The notification clarifies on various aspects of the amendments made to the Indian Stamp Act 1899. There was always this question of whether the stamp duty would be paid to the state where the client is located or where the broker is situated. As a matter of practice, brokers used to pay stamp duty to states where the contract note was issued,” said Sunil Gidwani, partner, Nangia Andersen Consulting Private Limited.

The notification clarifies that stamp duty will be payable to the state in which the client and specifically the buyer in a transaction is located.