The change

In Budget 2018-19, it was announced that reforms will be made on the levy and collection of stamp duty on financial securities transactions. It has taken a year for such reforms to be proposed. In the 2019-20 Budget, it has been proposed that stamp duty levy and collection will now be centralised. This implies that a uniform single rate will be levied across the country as stamp duty, which will be collected at one place, either by the stock exchange or by a clearing corporation on behalf of the State government. The buyer of the security will have to pay this charge. The collected amount will then be shared with the State government seamlessly based on the buyer’s location.

For equity and commodity futures, the stamp duty is proposed to be fixed at 0.002 per cent. For the options segment, it is fixed at 0.003 per cent. For currencies, the stamp duty is fixed at 0.0001 per cent.

The background

Stamp duty is one of the costs incurred by a market participant at the time of buying and selling, aside from brokerage, exchange charges, etc. Currently, the rate differs based on the State from which the market participant comes from. It also varies depending on the segments, that is, whether the transaction is done on equities or derivatives or commodities, etc. For instance, if you live in Mumbai, you have to pay a stamp duty of 0.002 per cent for transacting in equity cash (intraday) and derivatives (futures and options), currencies, 0.010 per cent for equity delivery and 0.001 per cent for commodities. Similarly, 0.006 per cent is the stamp duty charged for the equity (cash and derivatives) and currency segment if you are a resident of Tamil Nadu. As of now, Assam is the State that charges the highest stamp duty of 0.018 per cent across all segments.

At present, the stamp duty is collected by the brokers. They then remit the money to the respective State governments based on their client’s location and also declare it while filing the returns.

The verdict

A single rate across the country will make the life of a market participant easy. It will also bring in uniformity across the States.

For traders doing high volumes, the move will lead to cost savings. This is because, currently stamp duty is paid on both buying and selling. The proposed change, however, implies that the duty will be levied only at the time of buying. For traders with low volume transactions or for a long-term investor, the saving in cost may not be as substantial.

The move will, however, offer a big respite to brokers given the centralised stamp duty collection. It will reduce their burden of paying the States separately and also relieve them from filing returns.