Stamp duty w.e.f. 1st July 2020 on purchase of mutual funds and changes in stamp duty of equity trades

With effect from 1st July 2020, stamp duty will be applicable on purchase of mutual funds and there had been some amendments in stamp duty on equity trades as well.

Mutual Funds:

  • 0.005% stamp duty will be levied on mutual fund transactions. i.e. 0.005% of the net investment value (net investment value = gross investment amount less any other deduction like transaction charge)
  • The applicable stamp duty will be adjusted with the units allotted to you rather than being separately charged. Units will be created only for the balance amount (Net investment amount – stamp duty deducted). i.e. units will be allotted after deduction of the said stamp duty.
  • Stamp duty will be computed @0.005% on an inclusive method using the formula – ((Investment amount – transaction charge, if any) / 100.005) * 0.005.
  • Stamp duty will be applicable on purchase of mutual funds only and not on redemption.
  • Applicable for both physical and demat transactions
  • Stamp duty applicability will be on any purchase transaction including
    • SIP / STP-In
    • Dividend reinvestments / Dividend Transfer Plan – In
    • Switch-In
  • Stamp duty will be applicable for ETF transactions also.
  • Stamp duty impact on mutual fund investor’s return: The stamp duty levied is at a fixed percentage rate. Therefore, the impact of stamp duty is inversely proportionate to the holding period, it would be in the investors interest to have a longer holding period to minimize the impact.  This is because, the fixed cost (stamp duty) remains the same over a 1 day or 7 days holding period, whereas absolute returns for 7 days is higher compared to 1 day return. Investors with short indicative investment horizon of less than 30 days will get impacted more. Thus, investors should be aware of this impact and accordingly make a conscious decision based on their liquidity requirement.

Equity Trade:

  • Until now, stamp duty was charged at different rates based on your resident state. Most states were charging in the range of Rs 200 to Rs 300 per crore for intraday/derivatives and Rs 1000 per crore for equity delivery trades. Some states like Telangana, Haryana, etc. had a maximum cap on the stamp duty per contract note. W.e.f. 1st July 2020 Stamp duty will be charged uniformly irrespective of the state of residence.
  • The rates will be as below:
    • Delivery equity trades 0.015% or Rs 1500 per crore on buy-side
    • Intraday equity trades 0.003% or Rs 300 per crore on buy-side
    • Futures (equity and commodity) 0.002% or Rs 200 per crore on buy-side
    • Options (equity and commodity) 0.003% or Rs 300 per crore on buy-side
    • Currency 0.0001% or Rs 10 per crore on buy-side
  • The new rates are only on the buy-side and not on both buy and sell-side.
  • There was no stamp duty earlier for offline transfer of shares or mutual funds using DIS (delivery instruction slip), now there will be, based on the consideration amount entered on the DIS slip at the same rates as delivery trades.

Note:

  1. Stamp Duty on Bonds will be 0.0001% or Rs 10 per crore on buy-side
  2. Transfer of units from one demat to another demat account including market / off-market transfers will also attract stamp duty. Aplicable rate is 0.015%

Leave a Reply