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Stamp Duty rates on share certificate and other securities.

Stamp Duty rates on share certificate and other securities.

Today, we are decoding all the aspects related to Stamp Duty on Share Certificate, Securities in accordance with the Indian Stamp Act, 1899 read with the Finance Act, 2019.

In this Article, we are going to talk about, what are the stamp duty rates on securities i.e Equity Share, Preference Share, Debentures etc in India and how and by whom it shall be payable.

Following important points will help to understand provisions related to Stamp Duty on securities:-

What are the applicable Rates of Stamp Duty on the Issue of Share Certificate, Transfer of Share Certificate, Debentures, and other Securities?

The Stamp Duty rates are defined under Schedule I of Finance Act 2019 and extract of matters concerning with stamp duty on securities are specified below:-

.

Transactions

Rate of Stamp Duty

27. DEBENTURE—[as defined by section 2(10A)]

(see section 9A and 9B)

 

(a)in case of issue of debenture;

0.005%

(b) in case of transfer and re-issue of debenture.

0.0001%

56A. SECURITY OTHER THAN DEBENTURES (see sections 9A and 9B as given below*)

 

(a) issue of security other than debenture;

0.005%

(b) transfer of security other than debenture on delivery basis;

0.015%

(c) transfer of security other than debenture on non-delivery basis;

0.003%

(d) derivatives

(i) futures (equity and commodity)

(ii) options (equity and commodity)

(iii) currency and interest rate derivatives

(iv) other derivatives

 

0.002%

0.003%

0.0001%

0.002%

(e) Government securities

0%

(f) repo on corporate bonds

0.00001%

Currently, our focus is to find out stamp duty on share certificates, debentures and other financial instruments i.e securities.

Transactions

Payable to

91. Bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts.

Central Government (List I- Union List)

63. Issue of Share (Equity Share / Preference Share)

State Government (List II- State List)

44. Stamp duties other than duties or fees collected by means of judicial stamps

Both (List III- Concurrent List)

Stamp Duty Rate on transfer of equity shares or preference shares in physical form

In case of transfer of shares on delivery basis in physical form, stamp duty @0.015% would be payable. Since, transfer of shares is the Central Government Matter, hence same rate will be applicable all over India.

Stamp Duty Rate on issue of equity shares certificate or preference shares certificate

In case of issue of equity shares certificate or preference shares certificate, stamp duty @0.005% would be payable. However, issue of share is the State Government matter and process for the payment and stamp duty rate will be very state to state.

Stamp Duty Rate on issue and Transfer of Debenture certificate

In case of issue and transfer of Debenture Certificate, in case of issue, stamp duty @0.005% would be payable and in case of Transfer, stamp duty @0.0001% would be payable. Since transfer of debenture is the Central Matter hence same rate will be applicable all over India.

At what value stamp duty would be payable?

In the event of any sale or transfer of securities for consideration, the stamp duty on each of such sale or transfer is payable on the consideration amount specified in such instrument at the rate specified in Schedule I of the Finance Act, 2019.

By whom stamp duty would be payable (responsibility)?

In the absence of any Agreement to the contrary, it is the person/ individual/official drawing, making or executing such instrument, who is liable to pay the applicable Stamp Duty for transfer of shares in an incorporated Company or other body corporate.

Meaning thereby, the provision of Section 29 empowers the parties to incorporate and agree on the condition in the agreement of transfer, as to which party would be responsible and liable for payment of the Stamp Duty. It is only in the absence of any such condition, the stamp duty would be payable by the person drawing, making or executing such instrument of transfer.

Thus, where a particular party to an Agreement for transfer of shares has specifically agreed to be liable for payment of Stamp Duty, then, only such party would be liable for payment of the Stamp Duty.

In our opinion, liability to pay the Stamp Duty is therefore, subjected to the terms and conditions of the Agreement of transfer of shares executed between the parties.

Is there any exemption for the stamp duty?

Yes, Securities held with depository with DMAT form are exempted from stamp duty. Sec 8A dealt with the exemption, which is reproduced below:-

“8A. Securities dealt in depository not liable to stamp duty.Notwithstanding anything contained in this Act or any other law for the time being in force,—

(a) an issuer, by the issue of securities to one or more depositories, shall, in respect of such issue, be chargeable with duty on the total amount of securities issued by it and such securities need not be stamped;

(b) the transfer of registered ownership of securities from a person to a depository or from a depository to a beneficial owner shall not be liable to duty;

Explanation.—For the purposes of this section, the expression “beneficial ownership” shall have the same meaning as assigned to it in clause (a) of sub-section (1) of section 2 of the Depositories Act, 1996”

The Constitution of India empowered Government to levy and collect taxes and stamp duties and summarily, there are bifurcation of power between Central Government and State Government.

The Seventh Schedule to the Constitution of India contained 3 Lists i.e Union List (List I), State List (List II) and Concurrent List (List III). Items listed under Union list are dealt by the Central Government, Items listed under State List are dealt by the State Government and Items listed under List III Concurrent are dealt by both the Governments.

What are the consequences for non-payment or short payment of stamp duty?

As per Section 62 of the Indian Stamp Act, 1899, in case of inadequate Stamp Duty being paid, such offence shall be punishable with fine which may extent to Rs.500. It further provides that if a share warrant is issued without being duly stamped, the Company issuing the same and also every person who, at the time when it is issued, is the managing director or secretary or other principal officer of the company, shall be punishable with fine which may extend to five hundred rupees.

Thus, as per Section 62, it is the person who has drawn, made, issued, endorsed or transferred the instrument who would alone be responsible/liable for making good/cure the default, unless the Contract executed between the parties, states otherwise.

What are the legal aspects related to the Stamp Duty on Securities traded in Demat Form (Online)?

Securities can be traded in off-line market as well as on-line market (Stock market) and newly inserted Sec 9A dealt with provisions related to the stamp duty for transaction in stock exchanges (Online), which is reproduced hereunder:-

In case of transfer of shares on delivery basis in physical form, stamp duty @0.015% would be payable. Since, transfer of shares is the Central Government Matter, hence same rate will be applicable all over India.

Sec 9A. Instruments chargeable with duty for transactions in stock exchanges and depositories.—(1) Notwithstanding anything contained in this Act,—

when the sale of any securities, whether delivery based or otherwise, is made through a stock exchange, the stamp-duty on each such sale in the clearance list shall be collected on behalf of the State Government by the stock exchange or a clearing corporation authorised by it, from its buyer on the market value of such securities at the time of settlement of transactions in securities of such buyer, in such manner as the Central Government may, by rules, provide;

when any transfer of securities for a consideration, whether delivery based or otherwise, is made by a depository otherwise than on the basis of any transaction referred to in clause (a), the stamp-duty on such transfer shall be collected on behalf of the State Government by the depository from the transferor of such securities on the consideration amount specified therein, in such manner as the Central Government may, by rules, provide;

when pursuant to issue of securities, any creation or change in the records of a depository is made, the stamp-duty on the allotment list shall be collected on behalf of the State Government by the depository from the issuer of securities on the total market value of the securities as contained in such list, in such manner as the Central Government may, by rules, provide.

(2) Notwithstanding anything contained in this Act, the instruments referred to in sub-section (1) shall be chargeable with duty as provided therein at the rate specified in Schedule I and such instruments need not be stamped.

2[Provided that no such duty shall be chargeable in respect of the instruments of transaction in stock exchanges and depositories established in any International Financial Services Centre set up under section 18 of the Special Economic Zones Act, 2005 (28 of 2005).]

(3) From the date of commencement of this Part, no stamp-duty shall be charged or collected by the State Government on any note or memorandum or any other document, electronic or otherwise, associated with the transactions mentioned in sub-section (1).

(4) 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:

Provided that before such transfer, the stock exchange or the clearing corporation authorised by it or the depository shall be entitled to deduct such percentage of stamp-duty towards facilitation charges as may be specified in such rules.

Explanation.—The term “participant” shall have the same meaning as assigned to it in clause (g) of section 2 of the Depositories Act, 1996 (22 of 1996). 19

(5) Every stock exchange or the clearing corporation authorised by it and depository shall submit to the Government details of the transactions referred to in sub-section (1) in such manner as the Central Government may, by rules, provide.

What are the legal aspects related to the Stamp Duty on Securities traded in Physical Form (Offline)?

Newly inserted Sec 9B dealt with provisions related to the stamp duty for off line transactions (otherwise than stock exchanges), which is reproduced hereunder:-

9B. Instruments chargeable with duty for transactions otherwise than through stock exchanges and depositories.—Notwithstanding anything contained in this Act,—

(a) when any issue of securities is made by an issuer otherwise than through a stock exchange or depository, the stamp-duty on each such issue shall be payable by the issuer, at the place where its registered office is located, on the total market value of the securities so issued at the rate specified in Schedule I;

(b) when any sale or transfer or reissue of securities for consideration is made otherwise than through a stock exchange or depository, the stamp-duty on each such sale or transfer or reissue shall be payable by the seller or transferor or issuer, as the case may be, on the consideration amount specified in such instrument at the rate specified in Schedule I.

CS Aarti Kumari
(ACS, M.Com)
secretarialpro@yahoo.com
+91- 7428522985

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