Govt likely to move towards uniform stamp duty for states

Bill to amend model law coming in winter session

With the Centre planning to table the Indian Stamp (Amendment) Bill in the winter session of Parliament, there might soon be a uniform duty on stock market transactions across the county. To encourage investment and liquidity in securities, it seeks to allow stock exchanges to collect stamp duty from sellers, instead of buyers.

The Bill, being vetted by the law ministry, proposes a stamp duty rate of 0.001 per cent on delivery-based transactions and currency derivatives, and 0.003 per cent on clearance list, transfer deal and futures & options.

These rates are higher than the duty currently levied by a major state like Maharashtra (0.0001 per cent on most transactions) but much lower than a uniform rate of 0.005 per cent proposed by the state government two years ago. The new rates have not been notified yet due to opposition from markets players.

“Currently, many states don’t levy stamp duty on stock market instruments. A uniform duty recovered from sellers will generate volumes, transparency and check tax evasion. States are on board,” a finance ministry official, who did not wish to be named, told Business Standard.

In the proposed system, the duty will be deposited to the state where a seller is based. At present, it varies for different transactions from state to state. Sometimes, brokers collect the duty on sale as well as purchase of financial instruments and this leads to double taxation.

Currently, Maharashtra is the biggest beneficiary, accounting for about half the revenue collected from stamp duty on stock transactions annually. Gujarat, Rajasthan, Uttar Pradesh and Delhi are other major states.

Southern states like Andhra Pradesh and Karnataka, which do not levy stamp duty, might gain in the new system.

All states would get some duty, as traders would not be able to escape the tax by shifting to a zero-stamp-duty structure, officials said.

While many states have adopted the Indian Stamps Act, some have their own standalone stamp laws.

These states will have the right to continue with the existing system and collect different rates than those proposed by the Centre, but the finance ministry is confident that most states would adopt the model law, as it was expected to result in buoyancy in revenues due to a wider tax base.

The Bill also proposes to give power to states to review stamp duty on mining lease after every 10 years. Currently, there is no such provision. Since the Act is over 100 years old, some definitions will be updated and some terms removed to reflect the current nature of transactions and the new technology.

Officials said the duty on property transactions would be linked to the current market rate and states would have the power to revise it every year. States would also get more teeth to inspect the premises of builders.

One year validity is also being proposed for stamp papers to address the issue of forgery, as many people bought backdated papers to stake claim on a property in future, while no such deal would have actually happened on that date. Besides, electronic payment of stamp duty might  also be allowed under the new Bill.

The Bill also proposes to increase the penalty with regard to improper use of stamps. The draft amendment Bill had proposed a rigorous imprisonment of six months to three years or a fine of up to Rs 50,000 on a person who tried to defraud the government. According to the original Act, a fine of only Rs 5,000 was imposed for an act of fraud.

All states together get about Rs 60,000 crore from the levy of stamp duty. The collections have been growing at a rate of 10-15 per cent every year and the new law might further enhance that