Capital markets regulator SEBI on July 1 said stamp duty is not applicable on redemption of mutual fund units but switching in mutual fund would attract the stamp duty.
SEBI released the FAQs on stamp duty collection on July 1, with the provisions of the amended Indian Stamp Act coming into effect.
The regulator said that the units of mutual fund schemes are to be considered as securities for the purpose of applicability of stamp duty.
Regarding applicability of stamp duty on redemption of mutual fund (MF) units, SEBI said “redemption is not liable to duty as it is neither a transfer nor an issue nor a sale”.
However, switching in mutual fund would attract stamp duty. “The issue of fresh units in the switched scheme would attract stamp duty even though there is no physical consideration paid or transfer of ownership,” SEBI said.
This is because the new units are deemed to have been purchased with the NAV (net asset value) realised from the sale of earlier units, it added.
On calculation of stamp duty on issuance of mutual fund units, SEBI said stamp duty is imposed on the value of units excluding other charges like service charge, AMC fee, GST etc.
If the units are issued for ₹1 crore then ₹500 stamp duty is to be remitted to States.
The government in January had notified RTAs to act as depository for limited purposes of acting as a collecting agent under the Indian Stamp Act, 1899.
Therefore, Registrars to an issue and share Transfer Agents (RTAs) would collect stamp duty for non-demat mutual fund and alternative investment funds (AIF) transactions.
“The transfer of collected stamp duty to respective States/UTs by RTAs also is governed by buyer-based principle … and not on the basis of registered office of the issuer,” markets watchdog noted.
In case of mutual fund and AIF transactions through recognized stock exchange, the respective stock exchange/authorized clearing corporation or a depository is already empowered to collect stamp duty.
On transfer of units of Mutual Funds and AIFs held in physical form stamp duty is to be collected from the transferor but these transfers happen outside the purview of RTAs.
In such cases, SEBI clarified stamp duty has to be collected and remitted only by collecting agents, which is RTA for physical units and depositories for demat units. Where mutual Fund and AIF units are issued in physical form, stamp duty has to be collected and remitted by RTA.
Accordingly, when the transferee approaches RTA for effecting the transfer in their books, RTA will be collecting the stamp duty from the transferor before effecting the transfer which will then be remitted to the State of domicile of the transferee. The collecting agents have to transfer collected stamp duty to the State government within three weeks of the end of each month.
If any collecting agent fails to collect the stamp duty or fails to transfer stamp duty to the State government within fifteen days of the expiry of the time specified, shall be punishable with fine of not less than ₹1 lakh which may extend up to one per cent of the collection or transfer so defaulted.
The Finance Ministry on June 30 said States will collect stamp duty at uniform rate on transactions of shares, debentures and other securities from July 1.
With this, the stamp duty will have to be paid by either the buyer or the seller of a financial security, as against the current practice of levying the duty on both.
The present system of collection of stamp duty on securities market transactions led to multiple rates for the same instrument, resulting in jurisdictional disputes and multiple incidences of duty, thereby raising the transaction costs in the securities market and hurting capital formation.
The Finance Ministry said the move is aimed at facilitating ease of doing business and bringing in uniformity of the stamp duty on securities across States and thereby building a pan-India securities market.