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InvestmentSecurities LawStamp DutyTaxesAmendments To The Indian Stamp Act, 1899

July 1, 2020by GLC & Partners

Earlier, the stamp duties were not uniform in the country. Different states charged different stamp duties for different types of instruments as per their respective state stamp Acts. Company registered in one state would issue its shares in another state where the stamp duty on share certificates was less. Thus, taking advantage of the loophole. The difference in the amount led to rate shopping. The non-uniformity in collection of stamp duty across the country also led to multiple rates for the same investment, resulting in jurisdictional disputes and multiple incidences of duty and thereby raising the transaction costs in the securities market. For avoiding this, and to bring in the uniformity in charging the stamp duty across the country. the Central Government amended the Stamp Act through the amendments in the Finance Act, 2019.

The amendments to the Stamp Act was made in Part I of Chapter IV of the Finance Act, 2019 which came into force on 1st July, 2020.  The amendment in the Stamp Act, 1899 has now created a mechanism to enable states to collect stamp duty on securities market instruments at one place by one agency on one Instrument.

Key reforms of the Amended Stamp Act

  1. Uniformity in the stamp duty.

To avoid tax arbitrage, the same rate of stamp duty is levied for the issue or re-issue or sale or transfer of securities happening outside stock exchanges and depositories.

  1. Stamp duty to be levied on principal instruments only
  • The Stamp duty will now be charged only on the principal instruments. The amendment has introduced a new definitions of clearance list and allotment list.
  • When the sale of any securities, whether delivery based or otherwise, will be made through a stock exchange, the clearance list will be deemed to be the principal instrument on which the stamp duty will be payable.
  • When pursuant to issue of securities, any creation or change in the records of a depository is made, allotment list will be deemed to be the principal instrument on which the stamp duty will be payable.
  1. Stamp Duty to be levied only on one side

Now the stamp duty is levied only on one side i.e. it is levied either on the buyer or on the seller but not on both.

  1. Onus of payment of stamp duty

Section 29 of the Act enlists the persons who are liable to pay the stamp duty. The table below enlists the persons liable to pay the stamp duty for different transaction.

 

S.NO NATURE OF TRANSACTION PERSON LIABLE TO PAY
1. Sale of security through stock exchange

 

Buyer
2. Sale of security otherwise than stock exchange

 

Seller
3. Transfer of security through depository

 

Transferor
4. Transfer of security otherwise than through depository

 

Transferor
5. Issue of security whether through a stock exchange or a depository or otherwise Issuer
6. In case of any other instruments not specified in section 29 of the Stamp Act. By the person making, drawing or executing such instrument.

 

  1. Calculation of Stamp duty
  • The stamp duty will be calculated on the market value of such stock or security.
  • The stamp duty in the case of –
  1. options in any securities, the premium paid by the buyer;
  2. repo on corporate bonds, interest paid by the borrower; and
  3. swap, only the first leg of the cash flow.

 

  1. Stamp Rates for Instruments
S.NO INSTRUMENT STAMP DUTY
1. Debentures  
  i.       Issuance of debentures

 

0.005%
 
ii. Transfer or re-issuance of debentures
0.0001%
2. Securities other than debentures

 

 
  i.      Issuance of Securities (including mutual funds)

 

0.005%
  ii.    Transfer of Securities on delivery basis (including mutual funds)

 

0.015%
  iii.  Transfer of securities on non- delivery basis

 

0.003%
  iv.  Derivatives

 

 
  a.      Futures (equity and commodity)

 

0.002%
  b.      Options (equity and commodity)

 

0.003%
  c.       Currency and Interest rate derivatives

 

0.0001%
  d.      Other derivatives

 

0.002%
   

v.    Government securities

0%
   

vi.  Repo on Corporate bonds

0.00001%
3. Off- Market transactions 0.25%

 

  1. Collection and Transfer of Stamp Duties by the Agents
  • The stamp-duty on sale, transfer and issue of securities will be collected on behalf of the State Government by the collecting agents who then will transfer the collected stamp duty in the account of the concerned State Government. The collecting agents will be the Stock Exchanges or authorized Clearing Corporations and the Depositories.
  • After the collection of the stamp duty, the Colleting Agent will within three weeks of the end of each month transfer such duty to the appropriate state government.
  • To avoid any confusion with respect to which state will be entitled to receive the stamp duty, the Central Government has clarified that, – the stamp duty will be transferred to the state government where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant.
  • The Stamp duty collected will be transferred in the account of concerned State Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the Reserve Bank of India or the concerned State Government.
  • While transferring the Stamp duty, the collecting agent may deduct 0.2 per cent of the stamp-duty collected on behalf of the State Government towards facilitation charges.
  1. Stamp duty on secondary market and off market transaction
  • Stamp duty will be levied on all secondary market transactions in securities and such stamp duty will be collected by the Stock Exchanges.
  • Off- market transactions which are made for consideration and whose initial issue of securities happened in demat form will also be levied with the stamp duty which will be collected by the Depositories.
  • The transfer of units of a Mutual Fund including units of the Unit Trust of India, that are dealt by a depository will also be subjected to a stamp duty.
  1. No stamp duty on the registered ownership of securities

No stamp duty will be charged on the transfer of registered ownership of securities from a person to a depository or from a depository to a beneficial owner.

The Central Government has streamlined the entire process of collection of stamp duty with these amendments and has also eliminated rate shopping by prescribing uniform rates for each instrument across the country. It has also given the clarity with respect to the obligations in relation to payment of stamp duty. We believe that this initiative by the Central government will go a long way.