FPJ Facts: How will 0.005 per cent stamp duty on SIPs and Mutual Funds impact investors?

FPJ Web Desk | Updated on: Thursday, July 23, 2020, 03:45 PM IST

Mutual Funds |
Mutual Funds |

An amendment to the Indian Stamp Act, 1899 was introduced as part of the Finance Act, 2019. With this amendment, the government introduced stamp duty of 0.005 per cent on the investment amount on mutual fund units from July 1, 2020. The stamp duty on mutual funds was introduced to bring uniformity on the trading of shares and commodities.

What you should know about this duty:

The stamp duty will be applicable to all purchase transactions including equity, debt funds, or exchange-traded funds, Systematic Investment Plan ‘SIP’ (new as well as live); Dividend reinvestments; Systematic Transfer Plan (STP) and Dividend Transfer Plan (DTP).

The impact of this stamp duty will be higher among the short-term investors, while long-term retail investors will not be impacted much.

In the case of an investment value of Rs 1 lakh, Rs 5 will be deducted as Stamp Duty and the rest will be used to buy units in the SIP or mutual fund or other funds. In the case of SIP, the 0.005 per cent duty will be levied on every instalment.

The stamp duty levied on the transfer of mutual fund units between demat accounts will stand at 0.015 per cent.

In the past, some states imposed a much lesser duty, however, with the new amendment, the uniform duty of 0.005 per cent will impact individuals who purchase shares.

The stamp duty is not applicable to the redemption of mutual fund units, but the transfer of the units.

The duty is imposed on the value of units excluding other charges like service charge, AMC fee, GST and others.

The stamp duty will have to be paid by either the buyer or the seller. Usually, AMC will cut the duty from the investor’s investments.

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Published on: Thursday, July 23, 2020, 03:45 PM IST