Stamp Duty on Transfer of Shares in Dematerialized From
#Removal of the exemption of stamp
duty on transfer of shares in dematerialized form
CONTENTS
OF THE ARTICLE:
|
Details of the
Amendment
Purpose of the
Amendment
Key Updates from the
amended Stamp Act and the Rules
Applicability
Other Important Points
DETAILS
OF THE AMENDMENT
|
This is to inform your that pursuant
to the amendments to the Indian Stamp Act, 1899 notified in The Finance Act,
2019, Ministry of Finance (Department of Revenue) through its notification
dated December 10, 2019 has notified the
Indian Stamp (Collection of stamp-duty through Stock Exchanges, Clearing
Corporation and Depository) Rules 2019 to regulate the liability of the
instruments of transaction in stock exchanges and depositories to duty. (Earlier
effective date: 9th day of January, 2020)
Further, the Central Government
(Ministry of Finance) vide notification dated March 30, 2020 has deferred the
effective date of amendments in Indian Stamp Act to 01st day of July, 2020.
PURPOSE
OF THE AMENDMENT
|
The purpose of making such amendment
is to streamline the process of levying and collection of 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, as the case may be.
The Amended Stamp Act and the Rules
address the payment of stamp duty on securities. It brings clarity with respect
to modalities and obligations in relation to payment of stamp duty, and the
responsibility of the stock exchanges and depositories for collection of duty,
while effecting such transactions. Furthermore, the Rules also provide for the
duty of the collecting agents, that is, the stock exchanges and the
depositories to transfer the duty collected to the relevant state governments
(basis the domicile of the transacting parties) and submit monthly returns in
respect of the duty so collected.
*Union List did not have power to
specify rates of stamp duty in respect of issue of shares, the same comes under
the purview of the State Legislature.
KEY
UPDATES FROM THE AMENDED STAMP ACT AND THE RULES
|
1. Amendment
in the Definitions:
the Amended Stamp Act amends the existing definitions to align them with the
definitions provided under other laws/act(s), such as “debenture”, “market
value” and “securities”. The new
definition of “securities” is extensive and has the net effect of extending the
list of instruments liable to stamp duty.
2. Removal of the exemption of stamp duty on transfer of shares
in dematerialized form:
Prior to the amendment, transfer of securities in physical form was subject to
the payment of stamp duty and transfer of securities in dematerialized form was
exempted. This exemption has been
remived and stamp duty is now payable on transfer of securities (with
consideration) in dematerialised form.
3. Stamp Duty on Commercial Papers: Commercial Papers will be
stamped as Debentures.
4. Stamp Duty on principal instrument only: The existing provisions of
section 4 of the Act have been amended by including sub section (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.”
A single transaction
through the stock exchange or depository often involves the execution of
several instruments (e.g., notes, memorandums, etc.). To avoid multiplicity of payments of stamp
duty on such transactions, the Amended Stamp Act provides that stamp duty is
payable only on the principal instrument. The principal instrument for
different transactions is specified in the Amended Stamp Act. The Amended Stamp Act clarifies that no stamp
duty shall be charged on any instrument (other than the principal instrument)
on a single transaction.
5. Liability for payment of stamp duty: As per the Amended Stamp
Act, the persons liable to pay stamp duty in different transactions are as per
the below table:
Sl No.
|
Nature of transaction
|
Onus
|
1
|
Sale of security through stock exchange
|
Buyer
|
2
|
Sale of security otherwise than through stock exchange
|
Seller
|
3
|
Transfer of security through depository
|
Transferor
|
4
|
Transfer of security otherwise than through a stock exchange or
depository
|
Transferor
|
5
|
Issue of security (whether through a stock exchange or a depository or
otherwise)
|
Issuer
|
6
|
In case of any other instrument not specified in Section 29 of the
Indian Stamp Act, 1899
|
By the person making, drawing or executing such instrument
|
6. Revised Stamp Rates: The Finance Act has also amended the
Schedule I of the Stamp Act, to change some existing duties and provides for
new duties in case of transactions related to transfer.
Prior to the introduction
of the Amended Stamp Act, stamp duty was payable at a flat rate of 0.25% of the
consideration on a transfer of shares. There was no stamp duty prescribed on
the issue of shares (apart from the share certificate issued to the
shareholder). The Amended Stamp Act specifies the following rates of stamp duty
for different kinds of transactions involving securities.
|
Sl.
no.
|
Type
|
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
|
0.005%
|
|
ii.
|
Transfer of securities on delivery basis
|
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%
|
7. Transactions not attracting stamp duty [Rule 6 (3)]
: Creation or destruction of securities on account of
corporate actions viz. Stock split, Stock consolidation and Mergers and
acquisition in case there is no change in beneficial ownership will not attract stamp duty [Rule 6
(3)] subject to below exceptions:
Change in Beneficial ownership
shall be subject to stamp duty
Fresh issue to investor as a part
of corporate action shall be subject to stamp duty
8. Timeline for transfer of Stamp duty under Section 9A(4)
to State Government:
The stock exchange or a clearing corporation authorised by it or the
depository, as the case may be, shall, within
three weeks of the end of each month and in accordance with the rules made
in this behalf by the Central Government, in consultation with the State
Government, transfer the stamp-duty collected under this section 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.
APPLICABILITY
|
This amendment shall be applicable
with effect from 01st day of July, 2020.
OTHER
IMPORTANT POINTS
|
Ø For the purpose of stamp
duty, option trades shall be valued at premium
Ø If the consideration, for
off market transaction(s), is paid in part or in installments, then the stamp
duty shall be paid on the entire sale consideration.
Ø For transfer of securities
pursuant to invocation of pledge, stamp duty shall be collected from the
pledgee on the market value of the securities.
Ø In case of off-market
transfers Stamp duty shall be paid by the transferor on the consideration
amount specified by him in the 'Delivery Instruction Slip (DIS)'.
Ø For all off market
transactions stamp duty is to be paid in advance i.e. prior to execution of the
instruction. In continuation of above, applicable rates of Transaction and
Clearing Charges (on Turnover) effective from July 01, 2020 are:
Regards,
CS Ravi Garg
(Company Secretary &
Compliance Officer)
Mob.: +91-7838 20 4665
Disclaimer:
IN NO EVENT THE AUTHOR SHALL
BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM
OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.
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