Stamp Duty Rules 2020: The new amendments in the Indian Stamp Act, 1899 brought through Finance Act 2019 and Rules came into effect on July 1, 2020. The new stamp duty rules comprise a rationalised collection mechanism of stamp duty across India.
The centre framed the new stamp duty rules after due deliberations and consultations with the States and through requisite amendments in the Indian Stamp Act, 1899 and Rules.
The new stamp duty rules aim to facilitate ease of doing business and bring uniformity of the stamp duty on securities across States and thereby build a pan-India securities market.
Centre creates Rationalised Collection Mechanism of Stamp Duty
• The centre has created a legal mechanism to assist the states to collect stamp duty on securities market instruments at one place by one agency on one instrument. The concerned agency will be Stock Exchange or Clearing Corporation authorized by the centre or by the Depository.
• The centre has also developed a mechanism for appropriately sharing the stamp duty with relevant State Governments, based on the state of domicile of the buyer.
• The new mechanism has been created as the present system of stamp duty collection on securities market transactions led to multiple rates for the same instrument, which resulted in jurisdictional disputes and multiple incidences of duty, raising transaction costs in the securities market and hurting capital formation.
Impact
The new rationalized collection mechanism of stamp duty is expected to minimize cost of collection and enhance revenue productivity. This mechanism will also help develop equity markets and an equity culture across the country, paving way for a balanced regional development.
Stamp Duty Rules 2020: Key Features |
| To achieve the rationalization in collection of stamp duty, the government has introduced following amendments: • The stamp-duty on sale, transfer and issue of securities will be collected by agents on behalf of the State Government who then will transfer the collected stamp-duty to the account of the concerned State Government. • No stamp duty will be collected by the States on any secondary record of transaction associated with a transaction on which the depository / stock exchange has been authorised to collect the stamp duty. This is to prevent multiple incidences of taxation. • Earlier, the stamp duty was payable by both seller and buyer, while under the new mechanism it will be levied only on one side. It will be payable either by the buyer or by the seller but not by both, except in case of certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion. • The collecting agents for the state shall be the Stock Exchanges or authorized Clearing Corporations and the Depositories. • Stock Exchanges will collect stamp duty for all exchange-based secondary market transactions in securities, while Depositories will collect the stamp duty for off-market transactions that are made for consideration as disclosed by trading parties and the initial issue of securities happening in Demat form. • The centre has also notified the Clearing Corporation of India Limited, which is under RBI jurisdiction, to issue transfer agents to act as a collecting agent. • The collecting agents will have to transfer the stamp-duty collected to the State Government where the residence of the buyer is located within three weeks of the end of each month. In case the buyer is located outside India, then the collecting agents will transfer the amount to the State Government having the registered office of the trading member or broker of such buyer and in case there is no such broker then to the State Government having the registered office of the participant. • The collecting agent will transfer the collected stamp-duty to the concerned state government’s RBI account or any scheduled commercial bank. The collecting agent may deduct 0.2 percent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring. • There is a reduction in duty for many segments such as the rate prescribed is lower for the issue of equity/debentures and for transfer of debentures (including re-issue) to aid capital formation and to promote the corporate bond market. • There is also an overall reduction in tax burden for equity cash segment, as rates are to be charged only on one side in line with the new scheme. • For repo on corporate bonds, a far lower rate has been specified, as similarly positioned repo on Government Securities is not subject to duty. • The Instruments of transaction in stock exchanges and depositories established in any International Financial Services Centre will not be subjected to pay stamp duty. • The tax arbitrage can be avoided by providing the same stamp duty rate for issuance, re-issuance or transfer of securities happening outside stock exchanges and depositories. • All mutual fund transactions will be liable for stamp duty and the new system has only standardized the charges across states and the manner of collection of stamp duty. |
Background
The government had planned to amend the Indian Stamp Act since February 2019 when the Finance Act, 2019 was notified. The operating systems of Stock Exchanges, Clearing Corporations had all been set up prior to the roll-out of the new stamp duty rules. Even during strict lockdown phases to contain COVID-19 pandemic, efforts were made to ensure market continuity because Stock Markets are critical for the economy.
The new stamp duty rules were supposed to come into force in January 2020, which was later extended to April 1, 2020. The implementation of the new rules was further extended to July 1, 2020 after considering requests received from stakeholders for extension in the wake of the country-wide lockdown due to coronavirus outbreak.
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