Analysis of The Indian Stamp (Collection of Stamp- Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019. Article explains post amendment What will be the rate of the Rate of the stamp duty?, Who will be liable to pay Stamp Duty, Who will collect the Stamp duty and What will be the collection mechanism?

Background:

Stamp duty is a kind of tax collected by the state government under the Section 3 of the Indian Stamp Act, 1899. The stamp duty rates depend upon the type of the documents, contracts, assets, transactions value, tenure and gender and so on. For example, the stamp duty rate for transfer of property will be different from then the one charged in security transfer.

Ministry of Finance has issued the notification dated December 10, 2019 vide exercising their powers given under the Section 73A of the Indian Stamp Act, 1899 to regulate the liability of instruments on transaction in stock exchanges and depositories to duty.

Central government has issued the Indian Stamp (Collection of Stamp- Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 which shall be effective from January 9, 2020. ReadAmendments to Indian Stamp Act, 1899 applicable from 09.01.2020

Sr.No Questions Answer
1. What is the name of new rule? The Indian Stamp (Collection of Stamp- Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019
2. New rule is effective from which date? January 9, 2020
3. What are the changes have been introduced in this new rule? From January 9, off-market transactions will also attract stamp duty just like transactions conducted through exchanges do
4. What is off- market transactions? According to the National Stock Exchange, off-market transactions are trades, which are not settled through clearing corporations such as National Securities Clearing Corp., Clearing Corp. of India Ltd or the clearing house of a stock exchange.

Off-market transactions include transfer of shares at the time of inheritance, gifts and transactions in unlisted securities and so on.

5. Is this new rule applicable entire country or to particular states? Given that stamp duty is a state subject, till now, the rate varied from state to state.

Now all states will pay the same rate.

6. Is this benefits to all states? Some states will see stamp duty rates going down from the current rates, while others will see it going up.

For example, in Maharashtra, the stamp duty rate will go up from INR 1,000 per INR 1 crore to INR 1,500 per INR 1 crore for delivery (holding of shares for more than one day) and from INR 200 per INR 1 crore to INR 300 per INR 1 crore in case of non-delivery (intraday) trades.

7. What is market value? Market value means in relation to an instrument through which–

(i) Any security is traded in a stock exchange, means the price at which it is so traded;

(ii) Any security that is transferred through a depository but not traded in the stock exchange, means the price or the consideration mentioned in such instrument;

(iii)Any security dealt otherwise than in the stock exchange or depository, means the price or consideration mentioned in such instrument.

8. What is delivery based trading? Delivery based trading means buying shares and holding them for certain period of time is called delivery based trading.

The shares you bought will be in your demat account. Once you take delivery of shares you can hold them as long as you want.

9. What is non –delivery based trading? Non-delivery means you sell on the same day when you buy (Also called “intraday trading”)

Example: You buy on Tuesday and sell it on Tuesday

10. Whether this includes physical transfer of shares? There is no clarification on the same. We need to wait and watch for the same.

What is the rate of the Rate of the stamp duty?

Sr. No Nature of Instrument Nature of Transaction Rate of Stamp Duty
Pre-Amendment Post -Amendment
1. Debentures Issuance of Securities 0.05% per year up to a maximum of 0.25% or INR 2.5milion, whichever is lower 0.005%
2. Security (other than debenture) Issuance of Securities currently the issuance is charged as per State Schedule, which is generally at 0.1% 0.005%
3. Debentures Transfer of dematerialized Securities between  beneficial owners Exempt 0.0001%
4. Security (other than debenture) Transfer of dematerialized Securities between  beneficial owners Exempt (i) on delivery basis –0.015%

(ii) on non-delivery basis –0.003%

5. Derivatives Futures Various stamp rate in different states for ex:

Maharashtra – 0.002%

Delhi – 0.002%

0.002%
Options Various stamp rate in different states for ex:

Maharashtra – 0.002%

Delhi – 0.002%

0.003%
Currency and interest rate derivatives Various stamp rate in different states for ex:

Maharashtra – 0.002%

Delhi – 0.002%0.0002%

0.001%
Other derivatives Various stamp rate in different states for ex:

Maharashtra – 0.001%

Delhi – 0.001%

0.002%
6. Government securities Not available 0%
7. Repo on corporate bonds Not available 0.00001%

Who is liable to pay Stamp Duty?

Sr. No Transaction Payable by
1. Sale of security through stock exchange Buyer
2. Sale of security otherwise than through a stock exchange Seller
3. Transfer of security through a depository Transferor
4. Transfer of security otherwise than through a stock exchange or depository Transfer or
5. Issue of security whether through a stock exchange or depository or otherwise Issuer
6. In any other case By person making, drawing or executing such instrument

Who will collect the Stamp duty?

Sr. No Transaction Collecting Authority
1. On sale of any securities made through a stock exchange Stock exchange or clearing corporation appointed by it
2. On transfer of securities for consideration made by a depository otherwise than on the basis of any transaction referred to above Depository
3. On issue of securities leading to creation or change in the records of depository Depository

What is the collection mechanism?

Sr.No Transaction Collection Mechanism
1. For sale of any securities through the stock exchange, including sale of any listed units of any registered pooled arrangements or scheme or tripartite repo, (i) Stamp duty shall be collected on the settlement day;

(ii) For transactions reported to a stock exchange, the stamp duty shall be collected on the entire sale consideration when the transfer is reported, even if the consideration is paid in part or in instalments to be paid in future;

(iii) The sale consideration reported to a stock exchange shall be considered as the actual sale value;

(iv) In case of interoperability of clearing corporations, the trades of a client across the stock exchanges shall be considered for determining whether they would result in a delivery or not.

2. For transfer of securities for consideration made by a depository otherwise than through a stock exchange (i) Stamp duty has to be collected before execution of all off-market transfers involving transfer of securities in the depository system, including over-the counter trades occurring in dematerialised or electronic form;

(ii) In case of transfer of securities pursuant to invocation of pledge, duty shall be collected from the pledgee on the market value of securities.

3. On issue of securities leading to creation or change in the records of depository (i) Stamp duty shall be collected from the issuer before executing any transaction in the depository system;

(ii) Stamp duty shall not be collected on creation or destruction of securities on account of corporate actions such as stock split, consolidation, mergers and acquisitions, etc. Provided there is fresh issue to an investor as part of a corporate action, such issuance shall be subject to stamp duty;

References/Bibliography/Base:

  • https://www.livemint.com/money/personal-finance/who-ll-benefit-from-unified-stamp-duty-11576664815856.html
  • https://www.pwc.in/assets/pdfs/news-alert-tax/2019/pwc_news_alert_13_december_2019_indian_stamp_act_amendment.pdf

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