The government has started work on shifting to a uniform stamp duty structure for stock market transactions. While talks have been underway for several years, a finance ministry official said matters are close to fruition with several states appearing positive on the changes being discussed.
Among a host of things, the Centre is planning to empower stock exchanges to collect the duty and pass it on to the states. This will be a major shift from the existing structure where states directly collect the duty, whose rate varies from one state to another.
Under the proposed system, an electronic record would be the instrument for stamp duty and the rate will be uniform across states.
The change may be introduced as part of the amendments to the Indian Stamp Act, 1899, which are being drafted by the Centre in consultation with states.
Moving to a uniform stamp duty structure will also help develop the corporate bond market, a key priority area identified by the government.
The government hopes to table the necessary Bill in the Budget session of Parliament, as agreement has been reached on most issues.
However, a finance ministry official said while several states agreed to let stock exchanges collect stamp duty on share transactions, they donâ€™t know how to do it. "How this will happen is yet to be finalised. Exchanges have raised concerns about taking on this responsibility. They are asking who would be held responsible if an irregularity is detected. We will have to come up with a solution that is acceptable to all," said the official.
When contacted, the finance secretary of a large state said the issue is still being discussed because states with higher stamp duty such as Maharashtra and Delhi could lose if stamp duty is made uniform across states.
The draft Stamp Duty (Amendment) Bill, released for public comments in May, stated that stock exchanges should collect the stamp duty by deducting the amount from a trading memberâ€™s account at the time of settlement. The amount would be transferred to the government treasury or sub-treasury in the manner specified by the state government.
Some states such as Maharashtra, Rajasthan, Gujarat, Delhi, Karnataka and Uttar Pradesh have their own Stamp Duty Acts, while most others have adopted the Indian Stamps Act, but are allowed to set their rates independently, an official said.
"At present, there is no uniform law that specifies who should bear the stamp duty. But in 95 per cent of cases, it is borne by the purchaser. The duty on share transfer is fixed by the Centre at 0.25 per cent, but in case of share issuance, it is decided by states," said Yashojit Mitra, associate partner, Economic Law Practice.
A finance ministry official, however, said since brokers have to pay stamp duty to the state in which they trade, many shift to a no-duty state. Some states like Maharashtra tax transactions executed on exchanges in Mumbai and, thus, brokers are subjected to double taxation if their home state also levies stamp duty.