Stamp Duty on Share Issuance in Delhi: Physical vs Demat After 2025 Circular

Summary: The Delhi Government Circular dated 29 July 2025 clarifies that stamp duty on the issuance of shares by companies having registered offices in Delhi, whether in physical or demat form, is payable at 0.1% under Article 19 of Schedule IA of the Indian Stamp Act, 1899, and not at 0.005% under the Finance Act, 2019 framework. The clarification addresses confusion that arose after depositories began collecting duty on demat issuances at the lower central rate. The Circular relies on the constitutional distinction between issuance of shares, which falls within the State’s power to prescribe rates, and transfer of shares, where Parliament prescribes rates. While transfer-related stamp duty rates remain unchanged, the Circular directs depositories to collect 0.1% on share issuances by Delhi-registered companies. The clarification significantly increases the stamp duty burden on fundraising transactions and raises potential exposure for companies that paid duty at 0.005% on demat issuances between July 2020 and July 2025, as differential duty and penalties may be recoverable under Section 48.

Stamp Duty on Issuance of Shares in Delhi:
Physical & Demat — A Complete Legal Analysis Including the Delhi Circular 2025
Indian Stamp Act, 1899 |  Finance Act, 2019  |  Delhi Stamp Act (Schedule IA)  |  Delhi Government Circular dated 29th July 2025

1. Executive Summary

Key Issue: Should stamp duty on issuance of shares by companies registered in Delhi be charged at 0.005% (Central rate under Finance Act, 2019) or 0.1% (Delhi rate under Article 19 of Schedule IA of the Indian Stamp Act, 1899)?

Answer — Delhi Circular 2025: The Delhi Government, vide Circular dated 29th July 2025, has clarified that stamp duty on issuance of shares — whether in physical or demat form — shall be charged at 0.1% as per Article 19 of Schedule IA of the Indian Stamp Act, 1899. Depositories are now required to charge stamp duty at this higher rate for companies with registered offices in Delhi.

The question of stamp duty on issuance of shares has been a subject of legal uncertainty and practical confusion for several years, particularly after the Finance Act, 2019 introduced a unified framework for stamp duty on securities. This article provides a comprehensive analysis of the legislative history, constitutional underpinnings, the pre- and post-amendment positions, the rate dichotomy between Central and Delhi State law, and the crucial Delhi Government Circular of 2025 — along with its practical implications for companies.

2. Constitutional Framework: Division of Legislative Powers

Before delving into the specific rates and amendments, it is essential to understand the constitutional basis for stamp duty legislation in India. The Seventh Schedule to the Constitution divides legislative powers between the Union and State Governments through three Lists:

2.1 Entry 91 — Union List (List I)

Entry 91 of the Union List empowers Parliament to prescribe rates of stamp duty on specified financial instruments, including: Bills of Exchange, Cheques, Promissory Notes, Bills of Lading, Letters of Credit, Policies of Insurance, Transfer of Shares, Debentures, Proxies and Receipts.

Critical nuance: While Parliament fixes the RATES under Entry 91, the stamp duty so levied is collected and retained by the STATE GOVERNMENTS under Article 268 of the Constitution.

Therefore, though the Central Government sets the rate for transfer of shares (Entry 91), the revenue accrues to the State Government. This creates a unique situation where the Union legislates the rate but does not receive the revenue.

2.2 Entry 63 — State List (List II)

Entry 63 of the State List authorises State Governments to prescribe rates of stamp duty on all instruments NOT covered by Entry 91 of the Union List. This includes Conveyances, Leases, Mortgages, and critically — ISSUANCE OF SHARES / SHARE CERTIFICATES.

This is the foundational basis of the Delhi Government’s power to levy stamp duty on the issuance of shares at its own prescribed rate, distinct from the Central rate.

2.3 Entry 44 — Concurrent List (List III)

Entry 44 of the Concurrent List permits both Union and State Governments to legislate on matters other than rates, including definitions, procedures, enforcement mechanisms, and adjudication. In case of conflict, Union law prevails under Article 254 of the Constitution.

2.4 Constitutional Summary — Issuance vs. Transfer

This constitutional bifurcation is the root cause of the confusion and legal dichotomy that arose post the Finance Act, 2019 amendments — and which the Delhi Circular of 2025 has sought to resolve.

3. Regulatory Framework: Indian Stamp Act, 1899

3.1 The Indian Stamp Act, 1899 — Overview

The Indian Stamp Act, 1899 is the primary legislation governing stamp duty in India. It prescribes the instruments on which stamp duty is payable and the rates thereof. Key provisions relevant to issuance of shares include:

• Section 2(14): Defines ‘instrument’ to include every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded.
• Section 2(na): Inserted by Finance Act, 2019 — defines ‘market value’ in relation to securities as the consideration/price mentioned in the instrument.
• Section 3: Provides that stamp duty shall be chargeable in respect of the instruments mentioned in Schedule I.
• Section 9A: Inserted by Finance Act, 2019 — provides the mechanism for collection of stamp duty through Stock Exchanges, Clearing Corporations, and Depositories.
• Section 48: Empowers the State Government to recover deficit stamp duty where inadequate stamp has been affixed.
• Schedule I / Schedule IA: Contains the list of instruments and applicable rates of stamp duty.

3.2 Delhi Stamp Act and Schedule IA

Delhi, being a Union Territory with Legislature, has the power to enact its own stamp legislation and prescribe rates for instruments falling within Entry 63 of the State List. The Delhi Government has prescribed rates in Schedule IA (which is a State addendum/modification to Schedule I of the Indian Stamp Act, 1899).

Article 19 of Schedule IA of the Indian Stamp Act, 1899 (as applicable to Delhi):

Stamp duty on ‘Certificate or other document evidencing the right or title of the holder thereof, or any other person, to any share or stock in any incorporated company or other body corporate’ — i.e., Share Certificates — is prescribed at 0.1% of the value of the shares.

This is the rate that the Delhi Government has now affirmed applies to ALL issuances of shares in Delhi, whether physical or demat.

4. Position BEFORE Finance Act, 2019 (Pre 1st July 2020)

4.1 Stamp Duty on Issuance of Shares — Pre-2020

Before the Finance Act, 2019 amendments came into force (i.e., before 1st July 2020), the stamp duty framework on securities was fragmented and governed primarily by individual State Governments:

• Physical Share Certificates: Stamp duty was levied by the respective State Governments as per their own rates. In Delhi, Article 19 of Schedule IA applied, prescribing duty at 0.1% of the value of shares issued.
• Demat Shares: There was NO stamp duty on the transfer of shares held in demat mode. For issuance of shares in demat mode, the position was also governed by respective state laws, with the duty collected by states using their own mechanisms.
• Collection Mechanism: Each State Government had its own collection system for stamp duty on share issuance. There was no centralised or standardised mechanism.
• Rate Inconsistency: Different states prescribed different rates on share issuance. Some had rates higher than others, and the absence of a uniform framework created compliance challenges for multi-state companies.
• No Depository Role: Depositories (NSDL, CDSL) were not involved in the collection of stamp duty on share issuance. Their role was purely that of securities repositories.

4.2 Pre-2020 Rate in Delhi — Physical Issuance

Pre-2020 Key Takeaway for Delhi: All issuances of share certificates — physical or otherwise — by companies registered in Delhi attracted stamp duty at 0.1% under Article 19 of Schedule IA. However, the collection mechanism for demat issuances was not streamlined, leading to frequent evasion and non-compliance.

5. Finance Act, 2019 — Amendments to Indian Stamp Act (w.e.f. 1st July 2020)

5.1 Objective of the Amendments

The Finance Act, 2019 introduced landmark amendments to the Indian Stamp Act, 1899, which came into force on 1st July 2020 through a notification by the Ministry of Finance. The primary objectives were:

• To create a single-point, streamlined mechanism for collection of stamp duty on securities.
• To bring demat share transfers and issuances within the stamp duty net (previously, demat transfers were exempt).
• To eliminate multiplicity of rates across states by specifying Central rates for certain transactions.
• To designate Stock Exchanges, Clearing Corporations, and Depositories as ‘Collecting Agents’ responsible for collection and remittance of stamp duty to State Governments.
• To clearly define ‘market value’ as the consideration mentioned in the instrument, eliminating valuation disputes.
• To facilitate ease of doing business by reducing friction in stamp duty compliance.

5.2 Key Provisions Inserted / Amended by Finance Act, 2019

(a) Section 9A — Stamp Duty through Collecting Agents

The newly inserted Section 9A of the Indian Stamp Act, 1899 introduced a mechanism whereby stamp duty on securities transactions (both issue and transfer) would be collected through designated ‘Collecting Agents’ — Stock Exchanges, Clearing Corporations (like CCIL), and Depositories (NSDL, CDSL). These agents would collect, consolidate, and remit stamp duty to the respective State Governments.

(b) Revised Rates under the Central Framework

The Finance Act, 2019 amended Schedule I of the Indian Stamp Act to prescribe new, uniform rates for securities transactions at the Central level:

Critical Point: The Finance Act, 2019 prescribed a rate of 0.005% for ‘issue of securities other than debentures’. Depositories interpreted this as the applicable rate for all issuances of shares in demat mode and began charging accordingly — including for companies in Delhi. This created the rate dichotomy: 0.1% (Delhi rate under Article 19) vs. 0.005% (Central rate under Finance Act, 2019).

This inconsistency is precisely what the Delhi Circular of 2025 has sought to resolve.

(c) Definition of Market Value — Section 2(na)

The amendment defined ‘market value’ as the consideration/price mentioned in the instrument. This brought clarity on the valuation basis for stamp duty computation and was particularly significant for gift transactions (nil consideration = nil stamp duty) and ESOP issuances.

(d) Transfer of Shares in Demat — Now Taxable

One of the most significant changes was that transfers of shares in demat mode, which were previously exempt from stamp duty, became chargeable from 1st July 2020. The Depository (NSDL/CDSL) was designated as the collecting agent, making compliance seamless.

5.3 Collection and Remittance Mechanism Post-2020

6. The Rate Dichotomy: Central Rate vs. Delhi State Rate

6.1 The Problem — Two Different Rates for the Same Transaction

After the Finance Act, 2019 amendments came into force, a significant legal inconsistency emerged with respect to the rate of stamp duty applicable on issuance of shares by companies registered in Delhi:

SCENARIO: A private limited company registered in Delhi issues shares to its shareholders via demat mode. What rate of stamp duty applies?

Position A (Depositories / Central Framework): 0.005% as per the Finance Act, 2019 amendments to the Indian Stamp Act, Schedule I.

Position B (Delhi State Government): 0.1% as per Article 19 of Schedule IA of the Indian Stamp Act, 1899 (Delhi’s own Schedule).

The difference: If a company issue shares worth Rs. 1 crore, stamp duty under Position A = Rs. 500; under Position B = Rs. 1,00,000. A massive 200x difference!

6.2 Why Did Depositories Charge at 0.005%?

After the Finance Act amendments, the Depositories (NSDL, CDSL) — designated as collecting agents — began collecting stamp duty on issuance of shares in demat mode at the Central rate of 0.005%. Their reasoning was:

• The Finance Act, 2019 is a Central legislation applicable uniformly across India.
• The amended Schedule I of the Indian Stamp Act prescribed 0.005% for issue of securities (other than debentures).
• Being an all-India statutory body, they were bound to follow the Central Act rates.
• The State’s rate under Schedule IA was seen as applicable only to physical share certificates, not demat allotments.

6.3 Why Was This Legally Problematic?

The Depositories’ position, while understandable from an operational standpoint, raised significant constitutional and legal concerns:

• Constitutional Division: Issuance of shares (share certificates) falls under Entry 63 of the State List — the State Government’s domain. The Central Government’s power under Entry 91 covers rates for transfer of shares, not necessarily issuance.
• State’s Prescriptive Power: The Delhi Government had exercised its constitutional power to prescribe 0.1% for share certificates under Article 19 of Schedule IA. There was no valid Central legislation that overrode this rate for issuance transactions.
• Physical vs. Demat Inconsistency: Physical issuances by companies in Delhi continued to attract 0.1% (as the companies paid directly), while demat issuances were being charged only 0.005% through depositories. The same economic transaction attracted different rates solely based on the mode of holding — which had no statutory or constitutional basis.
• Revenue Loss to State: The Delhi Government was suffering a significant loss of revenue, as companies with registered offices in Delhi were effectively paying only 0.005% on demat issuances instead of the constitutionally mandated 0.1%.

7. The Delhi Government Circular dated 29th July 2025

Delhi Circular 2025 — Key Clarification:

The Delhi State Government, vide its Circular dated 29th July 2025, has categorically clarified that stamp duty on the issuance of shares by companies with registered offices in Delhi shall be levied at 0.1% as per Article 19 of Schedule IA of the Indian Stamp Act, 1899 — irrespective of whether the shares are issued in physical or demat mode.

The Circular asserts the State Government’s judicial superiority over the subject of stamp duty on instruments evidencing rights or title to securities, derived from Entry 63 of the State List and Entry 44 of the Concurrent List of the Constitution of India.

7.1 Key Pronouncements of the Delhi Circular 2025

(a) Applicability — Physical and Demat

The Circular expressly covers both modes of share issuance — physical share certificates as well as demat allotments. The rate of 0.1% under Article 19 of Schedule IA applies uniformly, regardless of whether the allotment list is created in a depository or share certificates are issued in paper form.

(b) Constitutional Basis Affirmed

The Delhi Government has grounded the Circular in its constitutional authority under Entry 63 of the State List and Entry 44 of the Concurrent List, thereby reinforcing that the State’s power to levy stamp duty on issuance of share certificates is distinct from the Central Government’s power over transfer of shares under Entry 91.

(c) Directive to Depositories

The Circular serves as a directive to Depositories (NSDL and CDSL) that for companies having their registered offices in Delhi, the stamp duty on share issuances shall be collected at 0.1% — not 0.005%. This directly impacts the depositories’ collection mechanism for Delhi-registered companies.

(d) Transfer of Shares — Unaffected

The Circular explicitly clarifies that stamp duty on transfer of shares shall continue to be governed by the Finance Act, 2019, i.e., at 0.015% for physical transfers. Only the issuance rate is being corrected/clarified.

7.2 Comparison of Rates — Pre-Circular vs. Post-Circular

7.3 Financial Impact Illustration

To illustrate the magnitude of the change brought by the Delhi Circular 2025:

The impact is substantial — the stamp duty burden increases 20 times (2000%) for companies registered in Delhi issuing shares in demat mode. This has significant implications for fundraising costs, startup ecosystems, and overall ease of doing business in Delhi.

8. Risk of Recovery for Past Issuances — Section 48 Risk

8.1 Section 48 of the Indian Stamp Act, 1899

Section 48 of the Indian Stamp Act, 1899 empowers the State Government (Collector) to call for and examine any instrument to determine whether adequate stamp duty has been paid. If it is found that the instrument has been insufficiently stamped, the deficit duty along with penalty may be recovered.

8.2 Risk for Companies That Paid 0.005% Instead of 0.1%

Companies registered in Delhi that issued shares between 1st July 2020 and 29th July 2025 and paid stamp duty at 0.005% through the depository mechanism may face exposure under Section 48 of the Indian Stamp Act. The Delhi Government could potentially:

• Issue demand notices: Calling for payment of the differential stamp duty (0.1% minus 0.005% = 0.095%) on all share issuances during this period.
• Levy penalty: In addition to differential duty, penalties under the Indian Stamp Act could be imposed for under-stamping.
• Examine allotment lists / PAS-3 filings: The State authority could cross-reference share allotments reported to MCA (ROC) via Form PAS-3 and issue targeted recovery notices.

Practical Advisory: Companies registered in Delhi are advised to:

1. Conduct a review of all share issuances from 1st July 2020 to present.

2. Calculate differential stamp duty exposure (0.1% – 0.005% = 0.095% of share issue value).

3. Seek legal advice on whether voluntary disclosure / payment would be advisable to mitigate penalty risk.

4. Proactively comply with the 0.1% rate for all future share issuances with effect from the date of the Circular (29th July 2025).

5. Monitor whether the Delhi Government issues specific guidelines on recovery / amnesty for the past period.

9. Complete Comparative Analysis: Pre-Amendment, Post-Amendment, and Post-Circular

10. Implications and Impact of the Delhi Circular 2025

10.1 Immediate Impact on Delhi-Registered Companies

• Increased Cost of Capital: Every share issuance now costs 20 times more in stamp duty terms. A startup raising Rs. 1 crore will pay Rs. 1 lakh in stamp duty instead of Rs. 500.
• Impact on ESOP Issuances: Employee Stock Option Plans (ESOPs) involve issuance of shares upon exercise of options. If the company is registered in Delhi, stamp duty at 0.1% on the consideration paid (exercise price) will now apply.
• Rights Issues and Bonus Shares: Rights issues involve share issuances and will attract 0.1% duty on consideration. Bonus shares (nil consideration) will continue to attract nil stamp duty as there is no consideration.
• Private Placements and Preferential Allotments: Companies undertaking fundraising rounds via private placement will now pay significantly more in stamp duty, affecting the economics of transactions.

10.2 Impact on Depositories (NSDL/CDSL)

Depositories will need to modify their stamp duty collection systems to apply different rates based on the state of the registered office of the issuing company. For Delhi companies, the rate must now be updated from 0.005% to 0.1%. This has operational implications for depository systems and processes.

10.3 Potential Domino Effect — Other States

The Delhi Circular may trigger similar actions by other State Governments. States like Maharashtra, Karnataka, Tamil Nadu, and others that have their own Schedule IA rates for share certificates may issue similar circulars asserting their right to collect stamp duty on demat issuances at their own rates, rather than the Central 0.005%.

This could result in a situation where the stamp duty rate on share issuances varies significantly from state to state, depending on the registered office of the issuing company — effectively reverting to the pre-2020 fragmented framework for issuances (though not for transfers).

10.4 Impact on Ease of Doing Business

The Finance Act, 2019 amendments were celebrated as a major ease-of-doing-business reform, rationalising stamp duty rates. The Delhi Circular partially reverses this benefit for issuances by Delhi companies. The concern is:

• Delhi loses competitiveness vs. states that continue to allow the 0.005% rate.
• Companies may consider shifting registered offices to states with lower issuance stamp duty rates.
• Increased compliance burden for depositories in managing state-wise differential rates.
• Uncertainty regarding retrospective recovery may deter investment in Delhi-registered companies.

11. Practical Compliance Guide for Delhi-Registered Companies

11.1 For Issuance of Shares — After 29th July 2025

11.2 For Transfer of Shares — Unaffected by Circular

11.3 Special Cases — Nil Duty Scenarios (Unaffected)

• Gift of shares: NIL stamp duty (nil consideration) — unaffected by Circular.
• Bonus shares: NIL stamp duty (nil consideration) — unaffected by Circular.
• Transmission (succession/inheritance): NIL stamp duty — unaffected by Circular.
• Government securities: NIL stamp duty — unaffected by Circular.

12. Conclusion

The Delhi Circular of 29th July 2025 is a landmark clarification that definitively settles the rate of stamp duty applicable on issuance of shares by companies registered in Delhi — at 0.1% under Article 19 of Schedule IA of the Indian Stamp Act, 1899, for both physical and demat issuances.

The Circular resolves the inconsistency that arose post the Finance Act, 2019 amendments, where depositories were collecting stamp duty at the lower Central rate of 0.005% even for demat share issuances in Delhi. The Delhi Government has correctly asserted its constitutional supremacy (Entry 63, State List) over the rate of stamp duty on instruments evidencing right or title to shares — a power distinct from the Central Government’s rate-setting power under Entry 91 for transfer of shares.

Companies registered in Delhi must update their compliance frameworks, liaise with their depositories for the rate correction, and carefully assess retrospective exposure for past issuances between July 2020 and July 2025. Other states are likely to follow Delhi’s lead, potentially creating a broader recalibration of stamp duty rates on share issuances across India.

The key takeaways from this comprehensive analysis are:

• Issuance in Delhi: 1% under Article 19, Schedule IA — both physical and demat — post 29th July 2025.
• Transfer in Delhi: 015% under Finance Act, 2019 — both physical and demat — unchanged.
• Constitutional basis: State Government’s power over issuance rate (Entry 63) is distinct from Central Government’s power over transfer rate (Entry 91).
• Past exposure: Companies that paid 0.005% on demat issuances between July 2020 and July 2025 may face recovery under Section 48 of the Indian Stamp Act.
• Gift / Bonus / Transmission: Nil consideration = nil stamp duty — unaffected by Circular.
• Domino effect: Other states may issue similar circulars in the coming months.

References and Sources

• Indian Stamp Act, 1899 — as amended by Finance Act, 2019
• Finance Act, 2019 — Amendments to Indian Stamp Act, 1899 (w.e.f. 1st July 2020)
• The Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019
• Article 19 of Schedule IA — Indian Stamp Act, 1899 (as applicable to Delhi / NCT)
• Constitution of India — Entries 91, 63, 44 of Seventh Schedule; Article 268
• Companies Act, 2013 — Section 56; Companies (Share Capital and Debentures) Rules, 2014
• Delhi Government Circular dated 29th July 2025 on Stamp Duty on Issuance of Shares
• FAQs on Amendments in Indian Stamp Act, 1899 w.e.f. July 01, 2020 — Ministry of Finance
• Corporate Professionals Article: ‘Recent Delhi Government Circular: Implication on stamp duty on issue of shares’ (August 2025) — https://www.corporateprofessionals.com/articles/recent-delhi-government-circular-implication-on-stamp-duty-on-issue-of-shares/
• Corporate Professionals Article: ‘FAQs on Amendments in Indian Stamp Act, 1899 w.e.f. July 01, 2020’ — https://www.corporateprofessionals.com/articles/faqs-on-amendments-in-indian-stamp-act-1899-w-e-f-july-01-2020/

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