The Union Territory of Daman and Diu is emerging as a hub for Indian brokerages thanks to a favorable tax law. The region with less than three lakh population is home to over 500 brokerages, which is one-fifth of the number of such firms across the country, said industry officials. The rush to set up shop in Daman and Diu is to take advantage of exemption on stamp duty, which results in cost savings especially for smaller broking firms.
Any trade in equities is subject to various taxes including stamp duty. As a measure to attract capital into the Union Territory, the central government has exempted businesses in Daman from paying any stamp duty. This provides a tax arbitrage for brokerages especially the ones who clock large volumes in proprietary trading.
Daman and Diu is the registered home to more brokerages than some of the large states including Karnataka, Tamil Nadu or Andhra Pradesh. Maharashtra remains the state with the highest broker registrations.
Most brokerages registered in Daman run their operations in the country’s financial capital Mumbai. The address of incorporation in the Union Territory is often a post box address or a small one-room place with one or two staff members.
One broker who spoke to ET requesting anonymity said there was nothing illegal about incorporating a company out of a tax favorable jurisdiction and not just brokerages but some of the non-banking financial companies (NBFCs) and smaller law firms have also used the same route.
Source: Economic Times
Reach us at https://taxmantra.com/business-maintenance/ or Call/WA us at +91-9230033070 for any support/query/feedback.