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 01^st 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 01^st 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)

E-mail : csravi2014@gmail.com

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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