The impact of the new stamp duty rates are not uniform: New Stamp Duty Norms on Shares, Debentures, and Mutual Fund Units

Team SoOLEGAL 3 Jul 2020 3:20pm

The impact of the new stamp duty rates are not uniform: New Stamp Duty Norms on Shares, Debentures, and Mutual Fund Units

A new change has been introduced by the Government regarding stamp duties by amending Indian Stamp Act, 1899 through union budget of 2019. The new amendment makes it compulsory on stock exchanges, depositories, and authorised Clearing Corporation to collect regular stamp duty on securities like equity shares, debentures, mutual funds etc and it will be effective from 1st of July.

Stamp duty on financial instruments is currently being imposed by the State Governments. It is the duty of the brokers and other middle men to collect the stamp duties and deposit it with the state. Stock exchanges, depositories, and Clearing Corporation of India can now collect stamp duties from any issue, transfer or sale of securities.

According to the new structure, the duty will be incidental to the purchaser or seller, with only a few exceptions. For example, the Finance Act states that a stamp duty would be imposed on the purchaser if the security is sold through a stock exchange. And, if the sale is made off the market, the seller will pay the stamp duty.

The impact on this new amendment is not uniform. In Maharashtra and Delhi it had clearly shown that when a duty rate per transaction is declined, the buyer will be paying more than earlier.

According to the new amendment the tax will be collected by the stock exchanges for all exchange-based secondary market transactions and by depositories for all non-market transactions and the initial issuance of securities in dematerialized form.

According to the finance ministry’s statement secondary market transfers are being charged on lower rate. The new rate which is prescribed is lower for issue of equity or debentures and also for transfer of debentures.

The prediction is that new changes in Income Tax Act, 1899 will increase the transaction costs of proprietary trades. Although, the excise of Securities Transaction Tax will continue on all security transactions which are executed on exchanges.

Tagged: stamp duty   uniform   Indian Stamp Act   shares   debentures   mutual funds   Stock exchanges   Income Tax Act   Clearing Corporation  
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