Stamp duty is a tax levied by the state government on the sale of real estate or documents. It varies from state to state. The amount of stamp duty to be charged depends on the value of the instrument or property on which it is levied. Earlier, stamp duty was to be charged only on physical transfer of shares i.e. on share certificate, but stamp duty on demat transfer was exempted. The Finance Act, 2017 amended Schedule I of the Stamp Act to amend the existing and add new ones in the case of transfer-related transactions. This article focuses on latest provisions on payment of stamp duty on shares.
Key Abstract
The amended provisions of the Indian Stamp Act, 1899 and The Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations, and Depositories) Rule, 2019 made possible by the Finance Act, 2019 took effect on July 1, 2020. The Central Government has established the legal and institutional framework through the aforementioned amendments to allow States to collect stamp duty on securities market instruments at a single location by a single agency (through the Stock Exchanges or through leasing organisations approved by the Stock Exchange or by the Depository Institutions) on a single instrument.
Let us first discuss about Payment of Stamp Duty on Shares, before we shall move upon to discuss recent highlights of the Amendment.
Payment of Stamp Duty on Shares
A share certificate is a certificate issued to a company’s shareholder in the form SH-1. Because a share certificate is an instrument, it must be stamped. Stamp duty on share certificates is a state-related issue in which late payment of stamp duty results in a penalty. To begin, stamp duty on share certificates must be paid at the time of incorporation, as well as on each subsequent share issuance. A share certificate is a printed and signed document that serves as legal proof of ownership of the number of shares mentioned on the certificate.
Stamp Duty on Share Issue and Transfer
According to the most recent modification to the Companies Act, 2013, even unlisted public companies must hold and transfer their securities solely in dematerialized form (Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014).
Such protections, however, are not required for private companies. As a result, only private companies may issue actual share certificates. A private limited company, on the other hand, can actively choose dematerialized securities.
According to the terms of the Indian Stamp Act, 1899, share certificates must be stamped within 30 days of their issuance. In addition, the company must issue share certificates within two months after its establishment date. If extra shares are allocated to new or existing owners, share certificates must be provided within two months after the allocation date.
Objective of the Provisions
The aim of the amendment is to streamline the process of collection of stamp duty on instruments related to the issue or transfer of securities by all states through joint agencies i.e. stock exchanges or clearing corporations or depositories. After the amendment, the Legislature considered the Allotment List and the Settlement List in other matters as an instrument for the purpose of determining the stamp duty, which was not previously specifically mentioned. It brought clarity in terms of manners and responsibilities. Furthermore, it is the duty of collection agents, i.e. stock exchanges and depositories, to transfer the obligations to the relevant state government and file a monthly return for them.
Highlights of the Amendments
The following are the recent highlights of the Amendments:
- Uniform stamp duty throughout the country.
- Stamp duty rates: It is now 0.005% when issuing units and 0.015% when transferring units. It does not matter whether the stock is in physical or demat mode.
- The mechanism of payment of stamp duty on demat securities has changed drastically for demat shares.
Stamp Duty Rates on Transfer of Shares and Debentures
Stamp duty on following instruments has been revised:
| Name of Instrument | Rate of Duty |
| Issue of Debenture | 0.005℅ |
| Transfer and Reissue of Debenture | 0.0001℅ |
| Issue of Security other than Debenture | 0.005℅ |
| Transfer of Security other than Debenture on delivery basis | 0.015℅ |
| Transfer of Security other than Debenture on Non-delivery basis | 0.003℅ |
| Derivatives | |
| Futures ( Equity and Commodity) | 0.002℅ |
| Options ( Equity and Commodity) | 0.003℅ |
| Currency and Interest Rate Derivatives | 0.0001℅ |
| Other Derivatives | 0.002℅ |
| Government Securities | 0℅ |
| Repo on Corporate Bonds | 0.00001℅ |
Manner and Timeline due Collection of Stamp Duty
The stamp duty so collected by the stock exchange or the clearing company or the depository shall be remitted to the State Government within 3 weeks from the end of each month or in accordance with the rules made in this behalf by the Central Government in consultation with the State Government, if the domicile of the purchaser is situated and in the event that is located outside the state government of the purchaser’s domiciled member or broker and, if there is no such trading member, to the state government of the participant’s domicile .
The collecting agent shall not use the stamp duty so collected for any purpose other than the said purpose and thereafter it shall be transferred to the concerned State Government along with the interest thereon. Then the collection agent submits a monthly return to the concerned state government mentioning all the information regarding stamp duty collected, stamp duty remittance details, defaulter’s details in the format of Refund of Stamp Duty Collected (Monthly/Annually) as provided by the Central Government.
Transactions not Attaching Stamp Duty
In case the beneficial ownership remains the same, any corporate actions taken in relation to the securities which result in stock splits, stock consolidations, mergers and acquisitions will not be subject to stamp duty. However, there are some exceptions –
- If the beneficial owner changes
- A fresh release for the Corporate Action investor.
Uniform Stamp Duty across the Country
Earlier, the state government had the right to levy tax on issue and transfer of shares as per its state rules. The obligation was therefore not uniform. However, with the introduction of recent changes, this right has been abolished and now all financial transactions are levied at a uniform rate of stamp duty.
Conclusion
It can therefore be stated that with the introduction of these changes, it has become mandatory to pay stamp duty even for those transactions that take place in demat form. Also, the customs rate became universal for the entire country at the time, which previously differed from state to state.
