Analysis and explanation of the draft Indian Stamp Bill, 2023

Introduction:

In India, taxes are levied in various forms, and one such form, prevalent since ancient times, is the stamp duty. In India, the Indian Stamp Act, of 1899 have laid down the legal framework for this fiscal statute, imposing a tax on instruments recording transactions through stamps. While a cornerstone of revenue generation, the Act, passed before Independence, faces limitations in the face of modern realities. Consequently, the Government of India has proposed a new draft – the Indian Stamp Bill, 2023 – aiming to modernize and reorient the entire system.

The Indian Stamp Act, 1899, has served India well for over a century. However, the time for reform is now. The Draft Indian Stamp Bill, 2023, offers a promising path forward, with the potential to modernize the stamp duty regime, promote economic efficiency, and ensure fairer tax contributions. As the Bill undergoes further discussion and refinement, it’s crucial to engage in constructive dialogue between policymakers, legal experts, and stakeholders to ensure its successful implementation and pave the way for a more streamlined and equitable stamp duty system in India.

Division of Stamp Duties:

The Indian Constitution meticulously distributes power between the Union and the States, and the realm of stamp duties is no exception. Understanding this division is crucial for both legal professionals and ordinary citizens to navigate the landscape of financial transactions. So, let’s delve into the nuances of this power-sharing arrangement:

Union Levies Duties on National Instruments:

Entry 91 of the Union List grants the central government the exclusive right to levy stamp duties on specific instruments of national significance. These instruments, like bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies, and receipts, represent financial and commercial activities with broader implications beyond individual states. Therefore, ensuring uniformity in their regulation and taxation falls under the Union’s purview.

States Rule the Local Realm:

As per Entry 63 of the State List, state governments hold the reins when it comes to levying stamp duties on documents dealing with matters primarily concerned with local interests. This includes sale deeds, leases, mortgages, conveyances, and other instruments related to transfer of property. Since these transactions primarily impact intra-state economic activities, the respective states hold the legislative power to tailor stamp duties to their specific needs and circumstances.

Concurrent List: Sharing the Stage:

However, the story doesn’t end there. Entry 44 of the Concurrent List introduces a collaborative space where both the Union and the States can levy stamp duties on certain “other” instruments. This category, while open to interpretation, potentially covers duties on commercial transactions not explicitly mentioned in either the Union or State Lists. This concurrent power allows for flexibility and adaptability in regulating new or emerging economic activities that transcend state boundaries but may not warrant centralized control.

Need for Reorientation:

Outdated Provisions and Complexities of the Indian Stamp Act, 1899:

It is a pre-constitution Act which means The Indian Stamp Act, 1899, was enacted during the British era and predates the Indian Constitution. While amendments have been made over time, several provisions have become redundant or inoperative in the face of the current situation and evolving digital era.

There are many Complexities and Ambiguities in the Act’s language and its structure can be complex and convoluted, making it difficult for users to understand and comply with its requirements. This can lead to confusion, inconsistencies in interpretation, and even litigation and lead to Inefficient Procedures as it relies more on manual processes and cumbersome procedures for stamp duty payment and administration. This can be time-consuming, inefficient, and prone to errors and delays.

There are many loopholes and evasion in the old act’s being complex and ambiguous, it can be exploited for tax evasion. This can lead to revenue loss for the government and unfairness to compliant taxpayers which indirectly hinders economic activity as the complex procedures and inefficiencies associated with the Act can discourage economic activity and investment. This can be particularly detrimental in the context of a modern, fast-paced economy.

There are many limitations of the Indian Stamp Act, 1899 such as Stagnant Rates as the Stamp duty rates haven’t been regularly reviewed or revised, leading to distortions and inequities in the system, as I quoted earlier there are technology gaps due to the digital era and the act doesn’t adequately address the use of technology in financial transactions, making it less relevant to the digital age. Secondly, it is inconsistent Across different States, these variations in stamp duty rates and procedures across different states are creating market distortions and are hindering inter-state commerce, if we talk practically

Now what is the motive of the Proposed bill?

It was required or the government found it necessary to usher in a New Era of Streamlined Stamp Duty Administration after recognizing the above limitations of the Indian Stamp Act, 1899, the Government of India has proposed a new draft – the Indian Stamp Bill, 2023.

This Bill aims to repeal the old act i.e. Indian Stamp Act, 1899, and replace it with a new, more modern and efficient law i.e. Indian Stamp Act, 2023 which aims to inter-alia simplify procedures by simplifying the language, structure, and processes for stamp duty payment and administration. This will make it easier for users to comply and reduce errors and delays. Along with that, it aims to rationalize stamp duties and review and potentially revise existing stamp duty rates to bring greater rationality and equity to the system, The Bill introduces stricter measures to deter tax evasion and improve compliance. This will help ensure fairness and maximize revenue collection and most important factor it aims to promote technology by encouraging digital payment of stamp duty and record-keeping, leading to greater efficiency and transparency.

So, What are the Benefits of the Proposed Bill?

The streamlined procedures and use of technology will lead to faster, more efficient stamp duty administration, and enhance transparency to the system, minimizing ambiguity and uncertainty for taxpayers, reducing tax burden by streamlining procedures and eliminating unnecessary formalities, In my opinion, it can potentially reduce the overall tax burden on businesses and individuals, also it will promote compliance by improved clarity and accessibility will encourage voluntary compliance, leading to better revenue generation for both the Union and States which will boost economic activity as it is more efficient and user-friendly stamp duty system can facilitate economic activity and investment.

Overview of the Draft Bill:

The Draft Indian Stamp Bill, 2023, promises a comprehensive revamp of the stamp duty regime. Here’s a glimpse into its key features:

Chapter I – Preliminary:

This chapter contains the short title, extent, and commencement of the new bill. It also defines various terms used in the bill.

Chapter II – Stamp-Duty:

This chapter deals with the levy of stamp duty on various instruments. It provides a list of instruments on which stamp duty is levied and the rates of stamp duty applicable to each instrument.

Chapter III – Collection and Recovery of Stamp-Duty

This chapter deals with the collection and recovery of stamp duty. It explains the various methods of collecting stamp duty, such as adhesive stamps, impressed stamps, and electronic stamps. It also provides for the recovery of stamp duty in case of underpayment or evasion.

Chapter IV – Instruments Not Duly Stamped

This chapter deals with instruments that are not duly stamped. It explains the consequences of using such instruments and the penalties for the same.

Chapter V – Allowances for Stamps Spoilt, Misused, and Unnecessary

This chapter deals with allowances for stamps that are spoilt, misused, or unnecessary. It explains the procedure for claiming such allowances and the conditions for the same.

Chapter VI – Reference and Revision

This chapter deals with the control of and statement of the case to the Chief Controlling Revenue-authority. It explains the procedure for referring a case to the Chief Controlling Revenue-authority and the High Court

Chapter VII – Offences and Penalties

This chapter deals with offenses and penalties related to the non-payment or evasion of stamp duty. It explains the penalties for using instruments that are not duly stamped and the penalties for making false statements.

Chapter VIII – Miscellaneous

This chapter deals with various miscellaneous provisions related to stamp duty. It explains the admissibility of instruments in evidence, the power of the Central Government to make rules, and the power of the State Government to make regulations.

You may refer detailed draft bill from the link below: https://www.dor.gov.in/sites/default/files/stamp%20duty%202023.pdf

Conclusion:

The Draft Indian Stamp Bill, 2023, marks a significant step towards modernizing the Indian stamp duty regime. By addressing the limitations of the current Act and incorporating contemporary best practices, this new legislation holds the potential to improve efficiency, enhance transparency, and facilitate economic growth. As the Bill navigates the legislative process, engaging in productive dialogue between policymakers, legal experts, and stakeholders will be crucial to ensure its successful implementation and pave the way for a more efficient and equitable stamp duty system in India.