Sebi has recently said that it will now allow NSDL to levy the off-market transaction charge of 10 basis points for transfer of an existing holding to CDSL. But even as this controversy gets down to being resolved, Sebi has not factored in the 50 basis points stamp duty payment which, in fact, may prove to be decisive. NSDL has a custody base of Rs 1.30 lakh crore worth of shares arising out of dematerialisation of about 800 crore shares.

Sebi sources said that although neither the Government nor the regulator has taken a formal view on this issue, the Government(read finance ministry) is interpreting the Act as making it clear that when a share is transferred from one depository to another it would attract a stamp duty charge.

This is why: The Depositories Related Law (Amendment) Ordinance of 1997, had amended the Indian Stamp Act of 1899. Clause (d) of section 8A of the Indian Stamp Act was modified to state: "transfer of beneficial ownership of shares, such shares being shares of a company formed and registered under the Companies Act, 1956 or a body corporate established by a Central Act dealt with by a depository, shall not be liable to duty under article 62 of schedule 1 of this Act."

As per the Depositories Act, every investor who dematerialises his shares with a depository becomes the beneficial owner while the depository itself becomes the registered owner of these shares.

As per the amendment to the Act, transfer of beneficial ownership is exempted from stamp duty. However, when a share is transferred from one depository to another, it becomes a caseof transfer of registered ownership of shares. In the books of a company, the depositories and physical shareholders are the registered owners of shares.

Interestingly, the Depositories Act had factored in multiple depositories in the country but the changes in the Indian Stamp Act did not anticipate this.

While market experts agree that there is no reason why transfer of demat shares between two depositories should not be exempt from stamp duty like transfer of demat shares within a depository are, they say that the law seems to state otherwise.

"The trouble is that an amendment to the Act would be required and this could be time consuming thus hitting transfer of account holders from NSDL to CDSL," said a market source.

"Although CDSL feels that an interpretation of the Act could be such that transfer of shares between depositories too remains exempt from stamp duty the government as of now does not seem to think so," said the source.

Sebi, like the rest of the market, feels that there is need toinstil competition among depositories and has hence decided to intervene to disallow NSDL from charging a 10 basis point charge on an investor wanting to exit from NSDL and moving his shares to the rival depository.

"But it looks that the stamp duty payment issue may prove to be a trouble spot," said a Sebi source.