Budget 2019: New Stamp Duty Proposal May Land A Hard Blow To Proprietary Trading 

The union budget for financial year 2019-20 has ushered in a paradigm shift in how stamp duty is levied on transactions involving financial instruments such as equity shares and derivatives. A shift that may curb avoidance but will also add to trading costs and one that may be debilitating to proprietary trades by brokerages.

Currently stamp duty rates on such financial transactions are determined by each state with as many as 20 different rates levied across the country. The stamp duty is paid when a contract is created for the trade executed by a broker at the behest of the client.

While multiple stamp duty rates across states are one point of confusion, the biggest issue so far has been the collection of the tax which is the responsibility of the broker who collects it along with the trading commission. The tax is paid to the state in which the client is domiciled.

Now, as per the Finance Bill, states can no longer charge or collect stamp duty on

• Issue of securities that create or change the records of a depository.
• Transfer of securities by the depository.
• Sale of securities when made through the stock exchanges.

“The obligation to collect the stamp duty on behalf of the state government has been cast on stock exchanges, clearing corporations authorised by the stock exchanges and depositories, as the case may be,” clarifies a note by law firm ELP.

The Finance Bill has specified new stamp rates on transfer of securities on a delivery basis, non-delivery basis and equity, commodity, currency and interest rate derivatives among other instruments.