The government’s plan to have a uniform stamp duty rate for all stock market transactions has moved a step closer to reality. The two major stock exchanges have agreed to take responsibility for collecting the duty and passing it on to the state governments.
How this will be done has been decided. Each state will authorise exchanges to collect duty on its behalf and electronically transfer the funds every fortnight. However, collecting duty on OTC (over-the-counter or directly between parties) market transactions in debt and currency deals is yet to be decided, as a uniform duty will be applicable to exchange-traded as well as OTC transactions.
The way for exchanges to collect duty was agreed on by inspectors-general for registration of all states at a meeting in Pune last month. It was attended by representatives of stock exchanges, the central government and the market regulator, the Securities and Exchange Board of India.
“The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have given their in-principle approval for collecting the duty. States are considering various options to make it convenient for them. There may be a central audit, instead of 35 states approaching the revenue department,” a finance ministry official told Business Standard.
Executives in the exchanges said they were assured of no harassment in complying with the new arrangement.
Issues
In case of OTC deals, the government will approach depositories to involve them in the process. “OTC has two components – corporate and non-corporate bonds. For corporate bonds, the depository can do the transfer, but for non-corporate bonds, it is difficult,” the official said.
Under the proposed system, the state where the security is sold will get the duty. At present, it varies for different transactions in various states. If the seller is abroad, the state where the broker’s dealing office is based will get the duty. Exchanges have been asked to make a database of the sellers by February to help identify their location. The database will be divided into delivery and non-delivery transactions.
At present, while many states have their own stamp duty Acts, some have adopted the Indian Stamps Act.
In the new system of a uniform duty on securities, the rate will be collectively decided by the states.
At present, states such as Maharashtra, Rajasthan and Gujarat levy stamp duty on stock market transactions. Southern states, which do not levy stamp duty, may gain in the new system. Of the total stamp duty collections of Rs 40,000 crore in the country, about Rs 100-150 crore comes from securities and Maharashtra alone gets Rs 40 crore.
“We are trying to see that no one loses in the new regime. We have done some numbers and found that the revenue will rise in the new system. All states will get some duty as traders will not be able to escape tax by shifting to states with zero stamp duty,” the official said.
Once an agreement is reached, the Centre will amend the Indian Stamps Act, 1899, and block the power of the states to fix rates in case of securities. The government has done so in case of warehousing receipts. It is trying to table the Bill in the Budget session of Parliament.
The draft Stamp Duty (Amendment) Bill, released for public comments in May this year, said the stock exchange should collect proper stamp duty by deducting the same from the trading member’s account at the time of settlement of transactions. The stamp duty so collected would be transferred to the government treasury or sub-treasury, it said.
