What is uniform stamp duty and how will it impact your stock transactions?

Quite simply, you will end up paying a bit more on your stock deals

A senior broking voice described the earlier stamp duty as some kind of small penalties, say around Rs 300 or so, payable a few times a week. The place you paid this 'penalty' varied and could be in different states at different times. Would you be happy if the government increased the penalty multifold, but made sure that you could pay it once a month in a designated place?

Brokers are unhappy because they had asked for stamp duty to be eliminated. The introduction of a uniform stamp duty, while making it easier operationally, is still an excessive levy according to them.

How much exactly would this cost? The levy on share transactions would vary from 0.003 per cent to 0.015 per cent, according to legal firm Khaitan and Co's note on the change, authored by partners Aakash Choubey and Deepak Jodhani, and senior associate Kapish Mandhyan.

“Stamp duties will be levied on one instrument relating to one transaction and gets collected only at one place, through the stock exchange. The duty so collected will be shared with all the state governments, seamlessly, on the basis of domicile of the buying client,” acting Finance Minister Piyush Goyal had said in his budget speech on Friday.

Earlier, state governments imposed stamp duty on stock market transactions. The rate and practice varied from state to state. Some states brought about lower stamp duty to attract stock market activity to their state. This will no longer be possible.

The effects of this are likely to be more than a simple application of uniformity. Brokers have called this an effective state-level securities transaction tax by another name, to supplement what was already being collected as securities transaction tax every time a trade happened by the centre. Other experts have said that it may make mergers and acquisitions more expensive. Another effect could be the fact that it could lead to higher taxation for companies raising money through debt transactions.

“It is pertinent to mention that in India, the percentage of total population investing in stock exchange-traded instruments is abysmally low. Hence, there is a need to attract and incentivise the investors for holding the investment for long-term so as to attract conventional investors who invest in gold, fixed return instruments or real estate,” the brokers representation to the government had said.

They had asked for abolition of dividend distribution tax, and that long-term capital gains be exempt for securities held for more than three years.

The move may still need some legislative action by state governments. The definition of securities is to be as per the Securities Contracts (Regulation) Act, 1956. This does not apply to private companies. This would also mean that clarity would be required on how private companies would be affected, according to legal firm Khaitan.  

For the average investor, there could be a marginal increase in transaction cost, and limited other impact.