Stamp Duty on Transfer of Shares – Can Share Transfer Stamps Purchased in One State Be Used for a Transfer Executed in Another State?
Short Summary: A question that comes up almost every week in practice is this: the share transfer deed is being signed in Karnataka, so must the stamp duty also be paid in Karnataka? Or can the transferor buy share transfer stamps in Delhi, affix them on the Form SH-4 executed in Bengaluru, and treat the instrument as duly stamped? The answer turns on one basic point: stamp duty on transfer of shares is not a State levy. The rate is fixed by Parliament under a Central Act, and after the Finance Act, 2019 amendment effective 1 July 2020, it is 0.015% of the consideration everywhere in India.
Short Answer
Stamp duty on transfer of shares is a Central subject. The rate does not change from State to State, and Section 9B of the Indian Stamp Act, 1899, which governs a transfer made otherwise than through a stock exchange or depository, fixes the person liable and the rate but does not tie the payment to the State in which the deed is executed. On this reading, a Form SH-4 executed in Karnataka bearing share transfer stamps purchased in Delhi is a duly stamped instrument, and the company can register the transfer. This is the author’s considered view; the safer practice, and the firm’s own position, is explained at the end.
Applicable Legal Provisions
- Constitution of India, Seventh Schedule, List I, Entry 91: Only Parliament can fix the rate of stamp duty on transfer of shares and debentures. States have no power to fix a different rate for it.
- Constitution of India, Article 268: Such duties are levied by the Government of India but collected and retained by the State. This explains why the collection machinery is still at the State level even though the levy is Central.
- Section 9B(b) of the Indian Stamp Act, 1899: For a sale or transfer of securities for consideration made otherwise than through a stock exchange or depository, the duty is payable by the seller or transferor at the rate in Schedule I. Unlike Section 9B(a), which, for an issue of securities, expressly fixes the place as the registered office of the issuer, clause (b) prescribes no place of payment for a transfer.
- Indian Stamp Act, 1899, Sections 3 and 17: Every instrument executed in India and listed in Schedule I is chargeable with duty and must be stamped before or at the time of execution.
- Schedule I, Article 62 (as amended): 0.015% of the consideration on transfer of shares, uniform across India.
- Companies Act, 2013, Section 56, read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014: The company can register a physical transfer only on receipt of a duly stamped Form SH-4.
Relevant Extracts (Simplified)
- Section 9B(b): Where a transfer of securities for consideration is made otherwise than through a stock exchange or depository, the stamp duty is payable by the transferor on the consideration amount at the rate in Schedule I.
Legal Position
1. The levy is Central, so the rate cannot change with the State
Whether the transfer deed is signed in Bengaluru, Delhi or Mumbai, the duty is the same 0.015% of the consideration. No State can charge more or less on a transfer of shares, and no State-specific notification is relevant to the rate. To that extent, the position is beyond argument.
2. The statute does not fix a State of payment for a physical transfer
This is the heart of the question. Section 9B(a) deals with the issue of securities and expressly fixes the place, namely where the registered office of the issuer is located. Section 9B(b), which deals with transfer, deliberately omits any such words. Since the same amendment used the words in one clause and not in the other, the omission has to be given meaning.
What the transferor must do is pay the correct duty at the correct rate before or at the time of execution. The statute does not say that the stamps must be bought in the State where the deed is signed. On this reading, share transfer stamps purchased in Delhi and affixed on a Form SH-4 executed in Karnataka constitute valid payment, and the instrument is duly stamped for the purposes of Section 56 of the Companies Act, 2013.
3. Where the contrary argument comes from
Under Article 268 of the Constitution, the duty, although levied by the Centre, is collected and retained by the State. A revenue officer may therefore take the position that the State in which the instrument was executed is the State entitled to the money, and that stamps bought elsewhere deprive it of revenue. There is no reported ruling settling this point for share transfer stamps after the 2020 amendment. Honestly stated, the position is not judicially settled; it is a question of practice rather than of rate.
4. Why the question is becoming academic
For demat transfers, the issue does not arise at all because the depository or the stock exchange collects the duty and remits it to the State where the buyer resides. With Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 requiring private companies other than small companies to dematerialise before any transfer, physical SH-4 transfers now survive mainly in small companies.
| Aspect | Position | Basis |
|---|---|---|
| Rate | 0.015% of consideration, the same in every State | Entry 91, List I; Schedule I, Article 62 |
| Person liable | Transferor | Section 9B(b) |
| Time of stamping | Before or at execution | Section 17 |
| State of payment | Not specified for transfer of shares | Section 9B(b), contrasted with Section 9B(a) |
| Demat transfer | Collected by the depository and remitted to the buyer’s State | Section 9A and the 2019 Rules |
Practical Interpretation
- Check the amount first. The duty is 0.015% of the consideration, so on a transfer of Rs. 10,00,000, it is only Rs. 150 — rarely worth a dispute with a revenue officer.
- Affix and cancel the stamps at the time of signing. Make sure the stamps are affixed before or at the time of signing and are properly cancelled by drawing a line or signing across them. An uncancelled stamp is treated as unstamped, and this is the defect most often noticed in practice, far more often than the State of purchase.
- Consider the value and circumstances of the transfer. Where the transfer is of high value, or the shares may later be examined in litigation, due diligence or an income-tax proceeding, the safer course is to pay the duty in the State where the deed is executed, through the e-stamping facility of that State, or to execute the deed in the State where the stamps were bought.
- Check whether Rule 9B applies. Before planning any physical transfer, confirm that the company is not covered by Rule 9B. If it is, the shares must be dematerialised first, and the whole question disappears.
- Consider the consequences of inadequate stamping. An instrument that is not duly stamped is inadmissible in evidence and can be impounded and adjudicated under Sections 33, 35 and 40 of the Indian Stamp Act, 1899, with a penalty under the relevant provisions. The penalty position should be verified against the current text of the Act before advising a client.
Example
Mr. R, resident in Bengaluru, sells 5,000 shares of a small private company to Mr. K for Rs. 5,00,000. The Form SH-4 is signed in Bengaluru. Mr. R affixes share transfer stamps of Rs. 75 purchased in Delhi and cancels them at the time of signing. The duty paid is at the correct Central rate, and the instrument is, in the author’s view, duly stamped; the Board can register the transfer. Had the consideration been Rs. 5 crore, the prudent course would have been to pay the duty through the Karnataka e-stamping facility.
Conclusion
The rate of stamp duty on transfer of shares is Central and uniform, and Section 9B(b) lays down no State in which a transfer must be stamped. The author’s view is therefore that share transfer stamps purchased anywhere in India, affixed and cancelled before or at execution, discharge the duty completely, and the deed is a valid, duly stamped instrument irrespective of the State of execution. Since the point is not judicially settled and the State of execution retains the revenue under Article 268, the conservative course, and the one recommended for large-value transfers, is to pay the duty in the State where the deed is executed. The amount involved is small, and the certainty is worth more than the convenience.
FAQs
Q1. A share transfer deed is executed in Karnataka. Must the duty be paid in Karnataka?
The rate is Central and identical everywhere, and the statute prescribes no State of payment for a transfer. The author’s view is that stamps bought in any State are valid. For high-value transfers, paying in the State of execution avoids any argument.
Q2. Does the rate change if the transferor and transferee are in different States?
No. It remains 0.015% of the consideration.
Q3. Does this question arise for demat transfers?
No. The depository or stock exchange collects the duty and remits it to the State where the buyer resides, so no stamps are affixed at all.
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Author: CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES, Company Secretary in Practice from Delhi, can be contacted at [email protected].
