This new duty on demat share purchase may make it cheaper to invest; here’s how

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Published: February 4, 2019 1:36:20 PM

After the Narendra Modi-led government on Friday, proposed to bring in a single stamp duty rate for all financial securities transactions and its collection at one place through stock exchanges, experts say that the step will help in bringing down the cost of investing.

Budget 2019-20The finance minister put a proposal to collect stamp duty at one place through the exchanges and share the proceeds with the states based on the domicile of the buyer.

After the Narendra Modi-led government on Friday, proposed to bring in a single stamp duty rate for all financial securities transactions and its collection at one place through stock exchanges, experts say that the step will help in bringing down the cost of investing. “The move to levy Stamp Duty on financial securities transactions only on one instrument relating to one transaction will make Equity Market Investments more affordable for investors and streamline the process of collection of this duty, and increase the level of ease of doing business in India,” Shrini Viswanath, CTO & Co-Founder, Upstox, a discount stock broking firm, said in a note.

Notably, with the aim to streamline the process of collecting duty and check evasion, the government has introduced a new process for levying stamp duty on shares. The duty will now be collected at the stock exchange in a uniform manner. Earlier, different policies were followed pertaining to collection, with stamp duty rates varying across states. So far, demat shares were exempt from paying stamp duty and those investments through physical shares attracted a levy.

In the budget, the finance minister put a proposal to collect stamp duty at one place through the exchanges and share the proceeds with the states based on the domicile of the buyer. “This should result in rationalising the costs as well as streamline the process of paying stamp duty,” Essel Mutual Fund CIO, Viral Berawala noted.

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However, Nikhil Kamath, Co-founder & Chief Investment Officer, Zerodha says that in the Budget, there is no clarity over stamp duty reform or the rationalization of STT, the two demands from the stock market at large. 

 According to Kunal Shangvi, Chief Financial Officer of MSE, after the latest change, the duty will now be collected at one place through the Exchanges and will be shared seamlessly between the states on the basis of the domicile of the buyer. “This brings in a lot of comfort, not only in terms of bringing down the cascading effect of the duty but also in terms of ease of compliance,” he said. 

Rajesh Baheti, president of ANMI said that rather than abolish stamp duty as STT is already levied on all transactions, the Govt has defacto imposed a state STT in the guise of stamp duty. “ANMI wants abolition of stamp duty as states are already a recipient of their share from the STT pool,” he added.

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