Stamp Duty on Securities
Stamp duty on securities transactions is a state-level levy on the transfer of shares, debentures, and other instruments, which was rationalised into a uniform national framework effective 1 July 2020 under amendments to the Indian Stamp Act, 1899, with rates now collected centrally and shared with states.
Before July 2020, stamp duty on securities was a fragmented state-level tax. Each state charged its own rate on the transfer of shares and debentures, and companies were required to pay duty based on the registered office state, creating arbitrage and compliance complexity. Rates varied widely — some states levied duty on market value while others charged on face value — resulting in significant disparities and opportunities for avoidance by routing transactions through low-duty states.
The Finance Act, 2019 amended the Indian Stamp Act, 1899 to introduce a new, uniform framework that centralised the collection of stamp duty on securities transactions through stock exchanges, clearing corporations, and depositories. The framework became operational from 1 July 2020. Under this regime, the collecting entity (exchange or depository) deducts stamp duty at prescribed uniform rates and remits the collections to the respective states based on the buyer's state of domicile. This shift eliminated the state-level fragmentation and plugged revenue leakages.
The uniform rates prescribed under the 2020 framework were: delivery-based equity trades at 0.015% of the transaction value (on the buyer side only), intraday equity trades at 0.003%, equity futures at 0.002%, equity options at 0.003% on the premium, currency and interest rate futures at 0.0001%, and mutual fund units at 0.005% on purchase. These rates are separate from STT and are charged on the buyer's side for delivery transactions. The framework also covers off-market transfers processed through depositories, which attract a stamp duty of 0.015%.
The unification was welcomed by the securities industry as it eliminated the earlier practice of 'forum shopping' — where companies would register in low-stamp-duty states to minimise the levy. It also significantly simplified the compliance burden for depositories and clearing corporations. However, adding stamp duty to the already long list of transaction levies (STT, GST on brokerage, exchange charges, SEBI fees) meant that the total transaction cost for investors, particularly active traders, increased post-2020.
Investors can verify stamp duty deductions on their trade confirmations and contract notes. For delivery-based equity purchases, stamp duty at 0.015% is deducted from the buy-side ledger. Mutual fund investors purchasing through platforms or directly with AMCs similarly have 0.005% stamp duty deducted on each subscription transaction. These amounts, though small individually, compound meaningfully over large transaction volumes and are a legitimate cost consideration in evaluating trading frequency and investment strategy.