Stamp Duty is a tax levied on sale of property purchases or documents by the state government. It varies from state to state. The value of stamp duty to be charged depends on the value of instrument or property on which it has been imposed.
Earlier the stamp duty was to be charged only on physical transfer of shares i.e. on share certificate but the stamp duty on demat transfer was exempted. The finance Act has amended Schedule I of the stamp act to change the existing ones and add new ones in case of transactions related to transfer. Also with the latest amendments the scope of it’s definition has widened. Earlier there used to be different stamp duty for different states but with the latest amendments it has been made uniform all over the nation. Let us discuss the amendments made by the ministry in detail.
Date of Notification and Applicability-
The rule of payment of stamp duty has now been amended by the Ministry of Revenue. The Central Government vide notification dated March, 30 2020 amended the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 with effect from 1st July 2020.
Objective of Amendment-
The objective of the amendment is to streamline the process of levying and collecting stamp duty on the instruments related to issue or transfer of securities, by all the States through common agencies i.e. Stock Exchanges or Clearing Corporations or Depositories. After the amendment the legislature has considered Allotment list and Clearing list in other things as instrument for the purpose of adjudication of stamp duty which was not expressly mentioned earlier.
It has brought clarity in regard to modalities and obligations. Furthermore it is the duty of collecting agents i.e. the stock exchange and depositories to transfer the duties to respective state government and submit a monthly return for the same.
Key Amendments to be considered-
- Amendment In Definition- The definition has been amended to widen up the scope . The new definition is more elaborate and thus has the effect of extending the list of instruments liable to stamp duty.
- Removal of exemption on stamp duty on transfer of shares held in demat form- Before the notification of provisions of Part 1 of Chapter IV of the Finance Act the stamp duty was to be charged only on physical transfer of shares i.e. on share certificate but the stamp duty on demat transfer was exempted. With this amendment stamp duty on transfer of shares held in demat Or electric form has been introduced. With this amendment the biggest relaxation available has been withdrawn.
- Stamp Duty on Commercial Paper- Stamp duty on commercial paper shall be same as that in case of debentures
- Principle Instrument Shall Be Subject To Stamp Duty- The already existing provision of section 4 has been amended by inserting sub sec(3) which is as follows-:
(3) Notwithstanding anything contained in sub-sections (1) and (2), in the case of any issue, sale or transfer of securities, the instrument on which stamp-duty is chargeable under section 9A shall be the principal instrument for the purpose of this section and no stamp-duty shall be charged on any other instruments relating to any such transaction.”
This it can be explained as – If there are several documents executed in a single transaction or agreement involving issue, transfer or sale of security then only the principal document shall be liable for stamp duty and no other instrument in such transaction shall be liable for stamp duty.
- Levy And Collection Of Stamp Duty In Case of Issuance, Sale and Transfer of Securities-The key amendments are explained underneath-
|Nature of transaction||Duty payable by whom?||Amount payable on duty||When payable?|
|If security is transferred through stock exchanges||Buyer||Price at which it is so traded||Settlement of transactions|
|If security is transferred through a depository||Transferor||Consideration specified in the instrument||Before executing transfer|
|If security is transferred otherwise than through a stock exchange/ depository||Transferor||Consideration specified in the instrument||Before executing transfer|
|If security is issued through a stock exchange/ depository or otherwise||Issuer||Consideration or Issue Price||At the time of issue or change in the records of depository|
|If security is issued otherwise than through a stock exchange/ depository||Issuer||Consideration specified in the instrument||At the time of issue of securities|
|If Offer for sale, private placement, tender offer or open offer is made through stock exchange||Offeror||Offer price||Once offer is completed|
|If Offer for sale, private placement, tender offer or open offer is made through Depository||Offeror||Offer price||Once offer is completed|
- Uniform Stamp Duty Across The Country- Earlier the state government had the right to levy the duty on issue and transfer of shares as per their state rules. Thus the duty was not uniform. However with the introduction of recent amendments this right has been taken off and now all financial transactions are levied at a uniform rate of stamp duty.
- Transactions Not Attracting Stamp Duty- In case where the beneficial ownership remains the same any corporate action taken on securities in that result in Stock split, stock consolidation and mergers and acquisitions will not attract Stamp duty. However there are certain exceptions to it-
- Stamp Duty Rates on Transfer of Shares and Debentures:
Stamp duty on following instruments have 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℅|
|Futures ( Equity and Commodity)||0.002℅|
|Options ( Equity and Commodity)||0.003℅|
|Currency and Interest Rate Derivatives||0.0001℅|
|Repo on Corporate Bonds||0.00001℅|
- Manner and Timeline for Collection Of Stamp Duty– The stamp duty so collected by the stock exchange or clearing corporation or the depository shall within 3weeks 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 transfer to the state government where the residence of the buyer is located and in case he is located outside to the State Government having registered office of the member or broker of the buyer and in case no such trading member is there, to the State Government having the registered office of the participant.
The collecting agent shall not utilize the Stamp Duty so collected for any other purpose other than mentioned and it shall then be transferred to the respective State Government along with the interest thereon. After that the Collecting Agent shall file a monthly return to the Concerned State Government mentioning all the information related to stamp duty collected, details of transfer of stamp duty, details of defaulters in a format of Return of Stamp Duty Collected (Monthly/Yearly) as provided by the Central Government.
Hence it can be concluded that with the inception of these amendments it has become mandatory to pay stamp duty even on those transactions which takes place in demat form. Also the rate of duty has become universal for then entire country which earlier used to vary from state to state.
However, no such provisions have been prescribed for the private companies. Thus, they are allowed to issue physical share certificates. However, a private limited company can voluntarily opt for dematerialized securities.
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