FAQs on recent amendments in Indian Stamp Act, 1899 ..................................... 4 Prelude ............................................................................................................... 4 Introduction........................................................................................................ 5 1. What was the intent behind amending the provisions of Indian Stamp Act? .............................. 5 2. What is effective date of the amendment? .................................................................................. 5 Constitutionality and Scope................................................................................................ 5 3. Levy of stamp duty is governed by which provision? ................................................................... 5 4. What do we mean by securities? .................................................................................................. 6 5. Who has the authority to levy stamp duty on issue and transfer of securities? .......................... 7 6. What kinds of instruments are subject to stamp duty? ............................................................... 7 7. What kinds of transactions in securities are covered within the ambit of the recent amendments in the Indian Stamp Act, 1899?....................................................................................... 8 8. What kinds of transactions are excluded from the ambit of the recent amendments in the Indian Stamp Act, 1899? ....................................................................................................................... 9 9. Post enforcement of the amendment, what will be the position of the States who have their respective Acts on stamp duty? ............................................................................................................ 9 10. Whether the Stamp duty amendment is also applicable on Unlisted Companies? ................. 9 Authority to collect Stamp duty ........................................................................ 10 11. Who has the authority to collect stamp duty? ....................................................................... 10 12. Which Government is entitled to receive the stamp duty in case of issue and transfer of securities? ........................................................................................................................................... 10 Framework for various kinds of securities ......................................................... 11 13. What do we mean by transactions ‘on delivery basis’ and ‘non-delivery basis’? .................. 11 Key Definitions................................................................................................................. 11 14. What do we mean by allotment list? ...................................................................................... 11 15. What do we mean by Market Value? ..................................................................................... 11 16. What do we mean by Settlement Day? .................................................................................. 12 17. What do we mean by clearing list? ......................................................................................... 12 18. What do we mean by domicile state? .................................................................................... 12 19. What is meant by ‘Debentures’? ............................................................................................ 12 Issue of Shares ................................................................................................................. 13
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FAQs on recent amendments in Indian Stamp Act, 1899 ..................................... 4
1. What was the intent behind amending the provisions of Indian Stamp Act?
As stated in the Budget speech1, the intent behind the amendment to Indian Stamp Act was to
harmonize stamp duty on financial securities transaction.
The intent was to bring about a streamlined system wherein stamp duties on financial securities would
be levied on one instrument relating to one transaction and get collected at one single place through
the stock exchanges or clearing corporation or depositories as the case may be.
The duty so collected will be shared with the State Governments seamlessly on the basis of domicile
of buying client.
2. What is effective date of the amendment?
The effective date of the amendment made vide Finance Act, 20192 is 9th January, 2020.3
Constitutionality and Scope
3. Levy of stamp duty is governed by which provision?
Article 246 of the Constitution of India4 empowers Central Government and State Government to
levy stamp duty.
Section 3 of the Indian Stamp Act, 18995 provides for instruments attracting stamp duty as per the
rates specified in Schedule I of the Act.
1 Speech for the Interim Budget 2019-2020 2 The Finance Act, 2019 3 Notification issued by Central Government dated 10th December, 2019 4 Constitution of India 5 Indian Stamp Act, 1899
v. Such other debt instrument of original or initial maturity up to 1 year as RBI may specify
from time to time.
4. Any other instrument declared by the Central Government, by notification in the Official
Gazette, to be securities for the purpose of stamp duty.
Negotiable instruments have been included under the definition of securities to be chargeable with
stamp duty. Additionally, the Central Government has been granted power to declare securities that
would be chargeable to stamp duty and thus can expand the definition of securities.
5. Who has the authority to levy stamp duty on issue and transfer of securities?
Entry 91 of the Union List:
“Rates of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading,
letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts.”
Accordingly, Central Government has power to levy stamp duty on issue and transfer of debentures,
transfer of shares and bill of exchange. State Government has power to levy stamp duty on items not
covered in Union list. Therefore, the power to levy stamp duty on issue of shares vests with State
Government.
Finance Act, 2019 seems to bypass this distinction as Parliament has prescribed rates of stamp duty in
case of issue of shares as well.
6. What kinds of instruments are subject to stamp duty?
As per Section 2(14) of the Indian Stamp Act, 1899
Stamp Act mandates payment of duty on instruments, including those created for a transaction in a stock
exchange or depository.
The arrangement of sections in Chapter II of the Stamp Act is also split in accordance with the aforesaid
instruments, as depicted in the figure below:
Part A Part AA
7. What kinds of transactions in securities are covered within the ambit of the recent
amendments in the Indian Stamp Act, 1899?
Transactions covered under the recent amendments are in relation:
Securities not liable to stamp duty [Section 8A]
Sale of securities made through stock exchange [Sec 9A (1) (a)]
Open offer, tender offer, OFS made through stock exchange [Rule 3(2)]
Transfer of securities made by a depository [Sec 9A (1) (b)]
Transfer of securities in case of pledge [Rule 5 (7)]
Acquisition of securities under Section 236 [Rule 6 (4)]
Issue of securities in demat form [Sec 9A (1) (c)]
Transactions not attracting stamp duty [Rule 6 (3)]
8. What kinds of transactions are excluded from the ambit of the recent amendments in the
Indian Stamp Act, 1899?
Transactions expressly excluded from levy of stamp duty under these amendments are:
i. Stock split
ii. Stock consolidation
iii. Mergers and acquisitions
iv. Such other transactions
These corporate actions shall only be excluded if they do not involve a change in their beneficial
ownership. However, fresh issue to an investor as part of a corporate action shall be subject to
stamp-duty. [Rule 6(3) of Stamp Duty Rules, 2019]
v. Transfer of registered ownership of securities from a person to a depository
vi. Transfer of registered ownership of securities from a depository to a beneficial owner.
[Section 8A(b) of the Stamp Act, 1899]
9. Post enforcement of the amendment, what will be the position of the States who have
their respective Acts on stamp duty?
Considering the intent of the government to introduce single point collection mechanism for financial
securities transactions, State Governments cannot impose separate stamp duty on securities even if
the same falls exclusively under State List.
10. Whether the Stamp duty amendment is also applicable on Unlisted Companies? Stamp duty provisions do not distinguish on the basis of companies being listed or unlisted. Stamp
duty is levied on execution of instrument pursuant to which any right or liability is, or purports to be,
created, transferred, limited, extended, extinguished or recorded. Accordingly, the amendments are
applicable on unlisted companies as well.
Authority to collect Stamp duty
11. Who has the authority to collect stamp duty?
Accordingly, pursuant to the power granted under Section 73A of the Indian Stamp Act, the Central
Government notified the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing
Corporations and Depositories) Rules, 2019 effective from January 9, 2020.
Further, the stock exchange or the clearing corporation authorised by it or the depository are entitled
to deduct 0.2 % of the stamp-duty collected, towards facilitation charges. [Rule 7 (4)]
12. Which Government is entitled to receive the stamp duty in case of issue and transfer of
securities?
Framework for various kinds of securities
13. What do we mean by transactions ‘on delivery basis’ and ‘non-delivery basis’?
Meaning
Delivery based transactions means those transactions where the securities are received by the Buyer.
Non-delivery based transactions means those transactions where the position is reversed by the Buyer
that results in settlement in cash for the gain or loss.
Distinction is crucial as different rates have been prescribed: [Section 9A(1)(a)(b) read with
Article 56A of Schedule I of the Indian Stamp Act]
Type of security (through stock exchange or
otherwise)
Rate of stamp duty per Rs. 1 crore transaction
Security, other than debenture, on delivery basis Rs. 1500
Transfer of security, other than debenture, on
non-delivery basis
Rs. 300
Determination of transaction
Whether a particular transfer of securities through a stock exchange or clearing corporations shall be
treated as on delivery basis or on non-delivery basis, would be determined by the clearing corporation
at the time of settlement, as per established principles governing delivery.
In case of inter-operability of clearing corporations
In case of inter-operability of clearing corporations, the trades of a client across the stock exchanges
shall be considered for determining whether the same would result in a delivery or not.
Key Definitions
14. What do we mean by allotment list?
A list containing details of allotment of the securities intimated by the issuer to the depository under
sub-section (2) of section 8 of the Depositories, Act, 1996
15. What do we mean by Market Value?
16. What do we mean by Settlement Day?
17. What do we mean by clearing list?
A list of transactions of sale and purchase relating to contracts traded on the stock exchanges
submitted to a clearing corporation in accordance with the law for the time being in force in this
behalf.
18. What do we mean by domicile state?
19. What is meant by ‘Debentures’?
In the erstwhile provision, debentures were included in the definition of Bonds but were provided
separately in Schedule I for the purposes of rate of stamp duty. Under the present amendment,
debentures have been excluded from the definition of bonds as a separate has been inserted, which is
different from the definition of debentures under Companies Act, 2013.
Issue of Shares
20. What is the value on which stamp duty is payable in case of issue of shares?
Stamp duty is payable on the total market value of shares issued. Market value shall be: [Section 2
(16B) of the Indian Stamp Act, 1899]:
Mode of issuance Market Value
Physical issue Price or consideration mentioned in the particular instrument i.e.
share certificate
Demat issue through a Depository Price or the consideration mentioned in in the allotment list.
Allotment list has been defined to mean the list containing
details of allotment of the securities that is intimated by the
issuer to the depository as mentioned u/s 8(2) of the
Depositories Act, 1996.8
21. What is the stamp duty payable on issue of shares in physical mode?
The stamp duty payable on issue of shares in physical mode is Rs. 500 per 1 crore rupees of the issue
price mentioned in the instrument. [Section 9B(a) read with Article 56A of Schedule I of the Indian
Stamp Act, 1899]
22. Who is required to pay the stamp duty and to whom?
The issuer is required to pay the stamp duty on issue of shares in physical mode. The duty shall be
paid to the State Government where registered office of the issuer is situated. [Section 9B (a) of the