From July 1, 2020, the cost of investment in direct stocks, mutual funds, ULIPs and NPS has gone up for investors.
However, the impact would be more acute on mutual funds, ULIPs and NPS due to incident of double stamp duty taxation. Simply put, mutual fund investors will have bear the burden of stamp duty tax twice – at investor level (when he purchases MF units) and at portfolio level (when the fund manager executes transaction). While the first taxation will be levied upfront, it will be adjusted to scheme’s TER in the second incident.
In mutual funds, the government has imposed stamp duty tax of 0.005% on purchase of units, SIPs, STPs and so on. This essentially means that fund houses will allot units after deducting stamp duty tax of 0.005% on invested amount. Simply put, if your clients invest Rs.1 lakh in an equity fund, the fund house will deduct Rs.5 and allocate units against the remaining amount.
Similarly, the government has imposed stamp duty tax of 0.015% on transfer of securities in mutual funds, which largely happens in ETFs.
However, there will be no stamp duty on redemption of units.
Further, the government has also imposed stamp duty of 0.0001% on transfer and re-issue of equity and equity related instruments. For debt instruments, the government will levy stamp duty tax of 0.015% on delivery transactions and 0.003% on intraday and option transactions.
In case of equity IPOs and fresh issuance of debt papers, the government has imposed stamp duty tax of 0.005%.
The stamp duty tax on futures both equity & commodity and currency & interest rate derivatives would be 0.002% and 0.0001, respectively. There will be no stamp duty tax on transactions of government securities.
Finally, the government would levy stamp duty of 0.00001% on transaction of repo on corporate bonds.
These rates will be common for all investors irrespective of their physical location. However, the government has clarified that stock exchanges will have to track origin of investors to distribute stamp duty among states.
Since mutual funds deal with shares, every time a fund manager executes transaction, the fund has to pay stamp duty along with securities transaction tax. Clearly, the impact would be more on funds with high turnover ratio.
Also, industry experts estimate that mutual fund industry executes transaction of Rs.5 lakh crore each month in equity and debt markets.
In addition, investors with short term horizon of less than 30 days (Overnight and liquid fund investors) will get more affected because the stamp duty tax is levied at the time of issuance of units.
