What is Stamp Duty?
Stamp duty is a kind of tax collected by the state government. Stamp duty is levied on the value of shares transferred. In India currently stamp duty is levied by various states and hence the rate of stamp duty varies from state to state.
The stamp duty is paid when a contract is created for the trade executed by a broker at the request of the client.
Some states brought about lower stamp duty to attract stock market activity to their state. This will no longer be possible.
What Changed with Stamp Duty Now?
The Finance Bill, 2019, has proposed certain amendments in the Indian Stamp Act, 1899 (the Act) bringing uniformity in the levy of stamp duty on securities whether through the physical or dematerialized form
New unified stamp duty rate to be charged to traders and investors at the time of trading in stocks, currency derivatives, and commodities. The new charges will come into force from 1 July 2020.
Who Pays the Stamp Duty Now?
Brokers were required to collect stamp duty from their clients and pay to respective state governments, now exchanges through which the transaction happens will do the job.
This reduces some amount of compliance burden on the brokers
Stamp duties to be collected by the stock exchanges or their authorized clearing corporations and the depositories on behalf of various State Governments.
No more stamp duty waivers on the transfer of securities and mutual fund units in dematerialized form.
Major Benefits of Unified Stamp Duty
•A unified rate will make it a level playing field.
When comes to Equity delivery trades stamp duty is now payable only by the buyers. Investors selling stocks won’t need to pay stamp duty. In the past, stamp duty had to be paid by both the buyers and sellers.
The stamp duty rate for currency and interest rate derivatives has been reduced from ₹200 per ₹1 crore to ₹10 per ₹1 crore
Stamp Duty on Off-Market Transactions
This is the first time that stamp duty has been introduced on off-market transfers done in Demat accounts. Off-market transactions include transfer of shares at the time of inheritance, gifts and transactions in unlisted securities and so on.
Unified Stamp Duty Biggest Threat to Prop Accounts
HFT Firms and Prop Trading Desk who generate 40+ percent of the exchange volume. A proprietary trader is basically an exchange member (broker) who trades on his own account.
Since a contract cannot be created by a broker involved in a trade for himself, many states currently impose a flat fee on the trade undertaken on the broker’s proprietary book.
The newer unified stamp duty provisions could bring a deeper surge in proprietary trading costs.