Stamp duty is charged per contract note and based on traded volume. Until now stamp duty was charged at different rates by the respective states. Brokers used to collect from clients and pay to the respective state government. Check this link to see how much you are currently paying.
Most states were in the range of Rs 200 to Rs 300 per crore for intraday/derivatives. Some states like Telangana, Haryana, etc had a maximum cap per contract note which was great.
The rates are generally lower for most states - by almost 50% (except which had a maximum cap per day). So lesser transaction cost for active traders.
Brokers had to earlier worry about collecting and paying to all the states, exchanges will do it now. A lesser operational burden on brokerage firms.
Bad news
Over 50% of trading volumes on exchanges are contributed by HFT firms/Prop shops who are themselves members on the exchange. There was no stamp duty on prop trading as a broker who trades for himself doesn’t have to generate a contract note. First reading, it seems like all of them will also have to start paying stamp duty.
Most of them run arbitrage strategies which generate large volumes with very thin margins. This stamp duty cost will definitely increase the transaction cost significantly and can potentially bring down the trading volumes on the exchange. Lower trading volumes mean higher impact cost for everyone else. The broking community will surely make a representation to get this clarified from the Govt, ideally, there should be no stamp duty on such trades that are executed for your own self.
It does not sound right that Prop trading is not paying stamp duty. Making them is making things uniform and level. It should be welcome.
I do not think brokers will get away from this now. Stamp duty is transaction charge for state government. It is possible the newer, better rates are made possible by covering everyone under the tax net.
When a brokerage firm trades for itself, you can’t create a contract note. If there is no contract note, there is nothing to be stamped and hence no duty. But yeah, let us see how this goes. All other charges for prop shops who are also members on the exchange is the same.
@nithin , so for traders from Tamilnadu , where stamp duty is .006% for Futures will be reduced to. 002% ,am i right. Also you mentioned stamp duty is only for buy side & not for sell side. How is it currently charged
Stamp duty on derivatives…i believe stock exchange or clearing corp will collect on behalf n will pay to the state of residence of buyers. I wonder if these rates have also been rationalised.
Futures (eqty n commdty) 0.002%
Options (as above) 0.003%
Currency n int rate derivat 0.0001%
Securities (other than debentures) delivery basis 0.015%.
Non delivery basis 0.003%
Hi, @nithin
Any update on till when the uniform stamp duty will be applicable?
Also, can brokers and other members ask the govt to cap the stamp duty like few states like Assam do. Charging on ad valorem basis makes scalping and day trading on Futures difficult.
Also, is it for retail traders to instruct their brokers not to generate Contract notes just like props, so as to escape huge stamp duty?
