Amendment for Centralized Stamp Duty collection comes into effect from 1st July 2020

These amendments were made for building a pan-India securities market

•  The Amendments in the Indian Stamp Act, 1899 brought through Finance Act 2019 and Rules
  made there under will come into effect from 1st July – 2020
• In a major development, Ministry of Finance has issued details about the implementation of
  Amendments in the Indian Stamp Act, 1899 and rules made from 1st July, 2020
• It is for rationalized collection mechanism of stamp duty across India with respect to Securities
  Market Instruments

Background for the amendment

• Ministry of Finance says the present system of collection of stamp duty on securities market
  transactions led to multiple rates for the same instrument
• It resulted in jurisdictional disputes and multiple incidences of duty, thereby raising the
  transaction costs in the securities market and hurting capital formation
• This rationalized and harmonized system through centralized collection mechanism is expected
  to ensure minimize cost of collection and enhance revenue productivity
• The Amendments in the Indian Stamp Act, 1899 brought through Finance Act 2019 and Rules
  made there under will come into effect from 1st July, 2020

Salient highlights of the amendment

• The stamp-duty on sale, transfer and issue of securities shall be collected on behalf of the State
  Government by the collecting agents who then shall transfer the collected stamp-duty in the
  account of the concerned State Government
• In order to prevent multiple incidences of taxation, no stamp duty shall be collected by the
  States on any secondary record of transaction associated with a transaction on which the
  depository or stock exchange has been authorized to collect the stamp duty
• 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 collecting agents shall be the Stock Exchanges or authorized Clearing Corporations and the
  Depositories
• For all exchange based secondary market transactions in securities, Stock Exchanges shall
  collect the stamp duty and for off-market transactions and initial issue of securities happening in
  DEMAT form, Depositories shall collect the stamp duty
• The objective is to bring OTC derivative transactions reported to CCIL and physical space (nonDEMAT) transactions in mutual funds handled through RTI or STAs under the ambit of stamp dutyregime so as to avoid any tax arbitrage
• The collecting agents shall within three weeks of the end of each month transfer the stamp-duty
  collected to the State Government where the residence of the buyer is located and in case the buyer
  is located outside India
• The collecting agent shall transfer the collected stamp-duty in the account of concerned State
  Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the
  collecting agent by the Reserve Bank of India or the concerned State Government
• The collecting agent may deduct 0.2 per cent of the stamp-duty collected on behalf of the State
  Government towards facilitation charges before transferring the same to such State Government
• For many segments, there is reduction in duty. For example, the rate prescribed is lower for
  issue of equity or debentures and for transfer of debentures to aid capital formation and to promotecorporate bond market
• For equity cash segment trading and options, since rates are to be charged only on one side in
  line with the new scheme, it can be stated that there is an overall reduction in tax burden
• Secondary market transfer of instruments which are traded with differences in a few basis
  points, like interest rate or currency derivatives or corporate bonds are being charged at a very
  lower rate from the existing rates
• No stamp duty shall be chargeable in respect of the Instruments of transaction in stock
  exchanges and depositories established in any International Financial Services Centre set up under
  section 18 of the Special Economic Zones Act, 2005
• Tax arbitrage is avoided by providing the same rate of stamp duty for issue or re-issue or sale
  or transfer of securities happening outside stock exchanges and depositories
• Mutual funds, being delivery-based transactions in securities, were supposed to have been
  paying the duty as per various State Acts
• All mutual fund transactions are thus liable for stamp duty and the new system has only
  standardized the charges across states and the manner of collection of stamp duty

Pic courtesy : affairscloud.com