Redemption of MF units not to attract stamp duty but switching in MF will: Sebi

New Delhi: Capital markets regulator Sebi on Wednesday 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 Wednesday, 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) realized 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 Rs 1 crore then Rs 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.