Scrapping of duty sop to hit day traders

Maharashtra to remove lower stamp duty on non-delivery trades from April 1

Day traders are in for a tough time with the Maharashtra government discontinuing the benefit of lower stamp duty on non-delivery trades with effect from April 1, 2005.

Till last year, the rates for stamp duty in Maharashtra was Rs 1,000 for delivery trades of Rs one crore and Rs 200 for non-delivery trades in the cash segment. A day trader will now end up paying Rs 1,000 as stamp duty on a turnover of Rs one crore.

A section of the day traders said their profitability will be impacted as the cost of transactions will shoot up considerably.

Only recently the Securities Transaction Tax (STT) was increased by 33 per cent on delivery as well as non-delivery-based transactions.

The enhanced rates of tax come into effect from June 1, 2005.

According to the earlier structure, a day trader was paying approximately Rs 1,800 in taxes on a turnover of Rs one crore.

Now with the hike in stamp duty and STT, the total cost is expected to go up to approximately Rs 3,700 on a turnover of Rs one core. A day trader said with the new rates, it will be extremely difficult to make profits.

The Maharashtra government had last year extended the benefit of reduced stamp duty rate of 0.002 per cent on non-delivery-based share transactions originating in Maharashtra. But the state Budget announcement this year was silent on this issue.

The stamp duty rates varies in other states. The rate is Rs 200 per Rs one crore transacted in Gujarat, Rs 100 in Andhra Pradesh and no duty at all in Tamil Nadu.

But brokers in Kolkata and Delhi pay the same rate of duty at Rs 1,000 on a turnover of Rs one crore.

The stamp duty charged by the state government is the major cost component on the execution of securities transaction. The cost is fully passed on to the investors.

Five years ago, the state government had reduced the stamp duty on non-delivery based share transactions from 0.02 per cent to 0.002 per cent, hoping that increased volumes will compensate for the lower duty and in fact, increased the revenues for the state government.

However, this didn't materialise and only last year there was a slight jump in the revenue collections.

Revenues in the first nine months of 2003-04 from stamp duty increased to Rs 79 crore. The state department expects the revenue collections under this head to reach Rs 100 crore once the data for the full year is compiled.

The previous financial year (2002-2003) had seen revenues of Rs 52 crore collected by the state department from the National Stock Exchange and the Bombay Stock Exchange on deliverable and non-deliverable share transactions at the rate of 0.002 per cent per transaction.