Stamp duty demystified

Fellow Traders & Investors,

To be very honest, the question of stamp duty is a mystery within the broking community itself. I had spent quite sometime researching on this for a client (brokerage). Will try to explain this in simple English and not use any jargon that our CAs/Lawyers tend to use to confuse us even more.

What is Stamp Duty? 

When we trade the markets a contract note is generated and sent to you by end of the day by the brokerage which shows all the transactions executed for that day. When the contract note is sent to you via courier it is signed physically, and when sent via email it is digitally signed by one of the bosses at the brokerage firm where you trade. When you receive a physical contract note, you will be signing on the courier POD and when you receive an email the log file is saved, both acting as a proof that you have acknowledged all the trades.

Like how you validate a rental agreement by taking signatures of all the parties involved on a stamp paper issued by the state government, similarly the contract note also has to be stamped. How much amount a particular contract note has to be stamped for is called as the “Stamp Duty”. Note that in this case the contract note is not actually stamped physically, but a fee is collected based on your turnover by the brokerage, which is then declared and paid to the relevant stamping authority (state government).

Million dollar question – Which Stamp Authority/State Government? 

This is where all the confusion exists,

The lawyers say: Stamp duty was originally a part of the Indian Service Tax Act, and as per that act a tax is applicable at the point of service. Today most brokerages are online and send contract notes from their servers located at their headoffice, and hence according to them the stamp duty has to be as per the state where their headoffice is. Some of them also say that the point of service should be where the trades happen (the exchanges themselves), which is in Mumbai and hence stamp duty should be collected and paid as per the Mumbai Stamp Act. But the thing about lawyers is that they have a vested interest in saying this, if tomorrow a state government sends a notice to the same brokerage, that will be new business for them.

The exchanges say: All the exchanges maintain silence on this except NCDEX, which has put up a short note on how to pay Stamp Duty on their website. NCDEX says that stamp duty has to be paid state-wise as per the clients’ correspondence address proof.

The state governments say: A few states don’t even have a clue on this, but most of them say that if the client has a residential address proof in their state, the stamp duty has to be paid to them. Lately, many of them have started sending out notices to brokerages who are not paying stamp duty of the clients’ who belong to their state. They cannot calculate what is the exact stamp duty due from a brokerage because they don’t get the state-wise turnover data of clients from the exchanges and have to go with what the brokerage declare, at least for now. Check this, a Google search result showing the letters sent by various state governments to the exchanges asking them to inform brokerages to pay stamp duty for all clients from their state.

State-wise Stamp Duty rates

I think it is just ridiculous that stamp duty rates for trading online are similar to buying property and goods, renting houses, etc. I hope our government wakes up and does something about it. For example, the Tamil Nadu Government today charges more stamp duty than what many of the discount brokerages charge you as a brokerage for offering their services. Some states have a cap on the maximum amount of stamp duty per contract note, and I think all states should be forced to follow this rule. Anyways, find following the stamp duty rates for various states.

Sl No State Amount Of Stamp Duty % Maximum Limit Remarks
1 ANDHRA PRADESH Fifty Paise (Rs.00.50 for
every Rs.10,000/- or part
thereof of the stock or
securities
0.005 Rs.50.00 Article 38
2 ARUNACHAL PRADESH Delivery .04%
Square Up .04% .
F&O .04%
0.04 Rs. 40.00 Article 43
3 ASSAM Ninety Paise (Rs.00.90) for
every Rs.5,000/- or part
thereof of the stock or
securities
0.018 Rs.49.50
4 BIHAR Fifteen rupees (Rs.15.00) for every Rs.1000/- or part thereof of the stock or securities 1.5 Rs.200.00 Article 43
5 DELHI Delivery .01%
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 54A
6 GOA, DAMAN & DIU One Rupee (Rs.1.00) for every Rs.10,000/- or part thereof of the stock or securities 0.01 Rs.50.00 Article 42 consider Article 5
7 GUJRAT Delivery 0.01%
Non-delivery 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 48A
8 HARYANA Thirty paise (Rs. 00.30 for
every Rs.10,000/- or
thereof of the stock or
securities
0.003 Rs.30.00 Article 43
9 HIMACHAL PRADESH Thirty paise (Rs. 00.30 for
every Rs.10,000/- or
thereof of the stock or
securities
0.003 Rs.30.00 Article 43
10 JAMMU & KASHMIR Sixty paise (Rs.00.60) for
every Rs.2,500/- or part
thereof
0.024 NO LIMIT
11 JHARKHAND Delivery 1.5%
Square Up 1.5%
F&O 1.5%
1.5
1.5
1.5
Rs.200.00
12 KARNATAKA One Rupee (Rs.1.00) for every Rs.10,000/- or part thereof of the stock or securities 0.01 MAXIMUM 50 Article 37
13 KERALA Delivery .01% IT
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 40
14 MADHYA PRADESH also applicable
in CHATTISGARH
One Rupee (Rs.1.00) for every Rs.10,000/- or part thereof of the stock or securitiesF&) 0.002% 0.010.002 NO LIMIT Article 5(ii) 20 b & 41 and Article 43
15 MAHARASHTRA Delivery .01%
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 51 (A)
16 MEGHALAYA Two Rupee (Rs.2.00) for every Rs.5,000/- or part thereof of the value of the stock or securities 0.04 Rs.40.00
17 NAGALAND Two Rupee (Rs.2.00) for every Rs.5,000/- or part thereof of the value of the stock or securities 0.04 Rs.100.00 Article 43
18 ORISSA Fifty Paise (Rs.00.50 for
every Rs.10,000/- or part
thereof of the stock or
securities
0.005 Rs.50.00 Article 43
19 PUNJAB Five Rupee (Rs.5.00) for every
Rs.10,000/- or part thereof of
the stock or securities
0.05 Article 43
20 RAJASTHAN Delivery .01%
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 5A,Article 40 Page 2097
21 TAMIL NADU Delivery .006%
Square Up 0.006%
F&O 0.006%
0.006 NO LIMIT Article 5 C (i)
22 UTTAR PRADESH Delivery .02%
Square Up 0.02%
F&O 0.02%
0.002
0.002 0.002
Rs.1000.00 Article 43
23 UTTARAKHAND Delivery .002%
Square Up 0.002%
F&O 0.002%
0.02 Rs. 1000.00
24 WEST BENGAL Fifty Paise (Rs.00.50 for
every Rs.5,000/- or part
thereof of the stock or
securities
0.01 NO LIMIT Article 43

Important to know

  • I think the safest bet for a brokerage is to charge and pay stamp duty as per the correspondence address proof of a particular client. What you need to know as a client/trader is that the onus of paying the correct stamp duty is on the brokerage and not you. So if tomorrow, a state government sends a demand notice to a brokerage, they cannot come back to you and ask money retrospectively. If this does happen, you can complain to the exchanges/regulators.
  • There are brokerages today that charge as per the state where their head office is and those who charge as per the state where you reside. If you are trading with full-service brokerages that charge 0.01/0.1% to 0.05/0.5% , or with pedigree brokerages like the ICICIs/HDFCs/Reliances of the world, it doesn’t matter even if they collect stamp duty as per the location of their head office. Why? Let us assume that one of the big brokerages get a demand notice from your state tomorrow, they will definitely be able to make good any differential stamp duty as they would have charged you so much more in terms of brokerage. They will also have the muscle power to fight it out with the state governments if need be. But if you are trading with a discount broker whose margins are very slim, or who doesn’t really have the expertise to handle a litigation, an incident like this can even lead to the brokerage having to shut shop. Why? Because a discount broker won’t be able to make up for the differential stamp duty as the profit margins are very small.
  • I’ve read on a few online forums about how brokerages can charge you stamp duty and pocket it for themselves. To clarify, this cannot happen, and if it does it is a serious offence which can lead to imprisonment of the directors at the brokerage. A few brokerages, when there is no clarity on whom to pay the stamp duty (for a few states), keep this stamp duty in a suspense account. Even the interest accumulated on this amount is added back to the suspense account, so don’t believe in such conspiracy theories.

So my advice is – if you are trading with discount brokerages (whose margins are wafer thin), it is safer to go with those who charge stamp duty as per the state where you reside. And if you are trading with a full-service brokerage (who has super fat margins), it shouldn’t matter if he is charging as per the state you reside or where his headoffice is.

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29 thoughts on “Stamp duty demystified

  1. Stamp Duty of Chhattisgarh state is
    0.01 for delivery based shares and for intraday derivatives (F&O) its is 0.002%

    If the above mention stamp duty of 0.01% is applicable with no limit that nifty future trader will suffer with huge charges.
    As stamp duty should be less than STT & other Transaction charges but if you calculate with above rate it will be higest charges than other charges.

    Please verify it

  2. Sir,
    Stamp duty is to be paid on execution of a document.

    Legally, onus of this payment is on seller who remains the owner of the executed document till he delivers it to the beneficiary.
    Obviously, the place of execution has to be presumed to be seller’s office/residence unless otherwise proven.

    For real estate, to check undervaluation, the conveyance etc are required to be registered at the property’s jurisdictional registrar without reference to residence of either buyer or seller.

    In case of shares it is the transfer deed that is to be stamped before execution (signing) by the seller.
    How can the residence of a beneficiary or buyer be the basis of jurisdiction.

    The shares sold/transferred in dematerialized form through DP are exempted from stamp duty.
    The futures and options are not even shares.
    Why and how and under what authority is stamp duty being charged, collected, remitted and accepted, is a big question.

    There is an urgent need to explore this question because once collected and remitted, even though in error, the clients will not see this money again.

  3. I have a complaint against the Stamp Duty against FAIRWEALTH SECURITIES LIMITED,I HAVE OPENED AN ACCOUNT WITH CLIENT CODE WBEE11 AND I TRADE IN NIFTY OPTION,I HAVE CONFUSION REGARDING STAMP CHARGES THE ARE SHWOING IN CONTRACT NOTE AS S.CHARGES (OTHER CHARGES) ON FUTURE TURNOVER ,BUT I AM AN OPTION TRADER MY TURNOVER IN OPTION IS LOWEST SO I THINK THERE IS SOME GHOTALA. CAN YOU GUIDE ME HOW COULD I TAKE ACTION AGAINST BROKING HOUSE?MY CONTACT NO 9163945300

  4. I am a corporate lawyer and I must commend for you for the simple manner in which you have explained this issue…..the research is also super!! Take a bow mate!

  5. I have a question, whether the stamp duty is liable to be paid for proprietary trades ? To the best of my knowledge, a contract note is not necessary for proprietary trades, so can the question of stamp duty arise in this case ?

    1. There are different schools of thought, but I think it is best to pay stamp on that. Exchanges will share trade details if asked by the stamp authorities of the state government on all trades originating from the state. The turnover will not differentiate client and prop trades, so if a lot of turnover has occurred, the authorities will most likely no let go of a money making opportunity.

      1. I typed in the commands, and even unplugged the usb to get it to work, but no luck. i typed it so many times i pretty much remembered the commandssuflash_image recovery /sdcard/recovery-0.99.2b.imgreboot recoveryI noticed there is also the 3b file?

  6. Sir
    please said how to calculation stamp duty charge for west Bengal on NFO

    8300 CE BUY 25 AT RS 65 my broker STAMP DUTY CHARGE deducted = 4.20
    this calculation Right or Wrong ?

  7. Hello. .
    Can you tell that in currency options the stamp duty is 0.002 % is charged on premium or actual price or strike price of the product ????. . As so many sources have written that it is 0.002% of the premium (found on the site of so many brokerage firms site).while some are mentioning 0.002% on FnO of the price of the contract . so if you go with a discount brokerage or with some fixed monthly charges for currency trading in options it goes up by 60-70 times if its on strike price. . Then it makes the biggest component of your cost.. so cost is going up by 15-20 times. .So if that’s on the premium can you also provide authentic source as it is not cleared on NSE website . . There is its like 0.002% on options ( but not cleared 0.002% of what!!!!!!).
    Thank you in advance

    1. Stamp duty is only on the premium amount. So it has to be 0.002% of the premium amount only. If someone is charging more, he is cheating.

  8. in chattisgarh u mention 0.01% stamp duty and 0.002% on fno can u pls clarify or confirm stamp duty rate for equity intraday square up trade for client residence of chattisgarh.
    again very good efforts to make the subject simple and easy to understand.
    i have got my many queries resolved here after surfing many useless sites.

  9. I think stamp duty should me same for all states for trading/investing in commodity/equity/currency. Stamp duty for buying/selling property may vary for different states, but in trading it should be uniform for all states. Some states like Bihar & Jharkhand charges much stamp duty because of this clients provides others states address proof to their brokerage firm. In this way these states loose the money which is considerable matter. I will wait for your thought and reply … thanks.

  10. Are you sure stamp duty for HP govt. is 30 paise for every 10000 and max limit is Rs. 30. I am client of Zerodha and they always charge flat Rs 50 for taking Equity delivery as well as intraday.

    Can you please double check if your figures are correct ? And if yes, can you provide me the proof to convince my broker to reduce the charge they levy on me

  11. Stamp duty for everything else makes sense, but not for capital markets,a petition should be filed in the same

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