Stamp Duty Collection: Ration(alize)
The amendments in the Indian Stamp Act, 1899 were proposed when the Finance Act 2019 was notified. The amendments were supposed to come into effect in January 2020. The applicability then got extended to April 2020 and finally due to Covid 19 pandemic, their applicability got postponed to July 2020.
The Stamp duty Rules 2020 has became applicable w.e.f 1st July 2020.
- Facilitate ease of doing business
- Collect stamp duty on securities market instruments
- Uniformity in collection of stamp duty
- Structural reforms to rationalize collection of stamp duty.
- Avoid Tax arbitrage
1. Rationalize collection of Stamp duty
One of the most important amendment in the stamp duty rules is to rationalize or uniform collection of stamp duty.
2. Stamp duty on Mutual fund transactions
All mutual fund transactions will be liable for stamp duty. Standardized and uniform charges rates shall be charged across states.
3. Structural reforms
(i) Stamp duty on securities on sale, transfer and issue of securities shall be collected by the collecting agents who will then transfer it to the account of the concerned State government.
(ii) The collecting agents shall be the Stock Exchanges or authorized Clearing Corporations and the Depositories for stamp duty. Clearing Corporation of India Limited (CCIL) and the Registrar and share transfer agents have also been authorized by the Central government to act as colleting agent.
(iii) Stock Exchanges shall collect the stamp duty for all exchange based secondary market transactions in securities.
(iv) Depositories shall collect stamp duty on all off-market transactions and initial issue of securities happening in Demat form, Depositories shall collect the stamp duty. (Off market transactions are those which are settled mutually between parties without involvement of the stock exchange or clearing corporation.)
(v) No stamp duty shall be levied by the State(s) on any secondary record of transaction associated with a transaction on which the depository / stock exchange has been authorised to collect the stamp duty. The objective is to prevent multiple taxation.
(vi) Stamp duty shall be levied on only one party – either the buyer of the seller. But not on both. This is applicable for equity cash segment (both delivery and non delivery based transactions). The exception to this will be transactions on which the stamp duty shall be borne by both parties in equal proportion (For example: exchange deed).
(vii) The collecting agent shall transfer the collected stamp duty in the account of the concerned State government with the RBI or any schedule or commercial bank. An amount of 0.2% of the stamp duty collected on behalf of the state government shall be deducted by the collecting agent as facilitation charge.
(viii) The collecting agents shall within 3 weeks from 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, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant.
4. Reduction of Stamp duty in certain cases
Stamp duty has been reduced for (a) issue and reissue of equity / debentures, (b)transfer of debentures (c) Repo on Corporate bonds
5. No Stamp Duty in certain cases
No stamp duty shall be chargeable in respect of (i) 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 (ii) Reverse repo on Government Securities.
The way ahead
The amendments are intended to have far reaching consequence. For instance, reduction in stamp duty rates are intended to reduce the burden on companies and encourage capital formation. Levying stamp duty on a single party, ensures there is no multiple stamp duty payments thus reducing burden on the ultimate payer and avoiding tax arbitrage. The objective is to facilitate ease of doing business. Standardizing the stamp duty rates across securities leads to balance all round development and build a pan India securities market.
It is to be appreciated that even from the initial lockdown due to onset of the Covid 19 pandemic, the government went all out to ensure that stock markets functioned consistently as their functioning was critical to the economy. The government has directed all collecting agents to reorient according to the revised Stamp duties and function accordingly from 1st July 2020.