With the objective of bringing uniformity in the stamp duty levied on securities transactions across states, the Government of India amended the Indian Stamp Act 1899 (revised Act), through Finance Act, 2019, and the relevant Stamp Rules, 2019, were notified on December 10, 2019. The revised Act has come into effect from July 1, 2020. Under the revised Act, CCIL has been appointed as collecting agent for foreign exchange, interest rate and credit derivative transactions which are reported to it.” Not every day the said news happens. Let us celebrate by knowing the latest amendments by way of questions and answers for better understanding.
The message is clear and it conveys that due to different interpretations of the Indian Stamp Act, 1889 one of the most widely used acts for stamp duty purposes, we shall learn a lot by asking relevant questions and try for some suitable answers.
Time for questions and answers.
Q. Why amendments in the Indian Stamp Act, 1899 have been made?
Answer: The amendments, having been related to securities market transactions, brought uniformity among various jurisdictions and avoid excess payment as stamp duty.
Q. What is the basic framework being created through the amendments to the Indian Stamp Act, 1899?
Answer: Now, the states will collect stamp duty on security market instruments in one place and by only one agency. The Stock Exchange or Clearing Corporations authorized by the Stock Exchange or by the Depositories are the chosen ones. Yes, if Punjab National Bank who handles my depository account would collect the stamp duty and debit it to my account. A suitable mechanism to share the stamp duty from the state of domicile has also been worked out. This is good news.
Q. What are the expected key benefits of amendments in the Indian Stamp Act, 1899?
Answer: Benefits can be narrated as under:
Q. The amended provisions of the Stamp Act and Rules made thereunder will come into force from which date?
Answer: The amended provisions of the Indian Stamp Act, 1899 brought through Finance Act, 2019 and Rules made thereunder shall come into force i.e. 1st July 2020.
Q. What all instruments are covered under Part AA of Chapter II of the amended Stamp Act and the Rules made thereunder?
Answer: (Flowing directly from the web but with slight arrangement for clarity)
Each security is charged with a duty as specified in Schedule I of the amended Stamp Act. Securities are defined to include all those instruments specified in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956;
In a nutshell, a derivative, a certificate of deposit, usance bills, commercial paper as used by companies, and repo on corporate bonds.
Q. Who will collect the Stamp Duty on behalf of the State Government?
Answer: The stamp duty on sale of securities, transfer of securities and issue of securities shall be collected on behalf of the State Government by the Stock Exchange or Clearing Corporation authorized or Depositories (authorized collecting agents).
Further, the Clearing Corporation of India Limited (CCIL) and the Registrars to Issue and / or Share Transfer Agents have also been instructed to act as collecting agents, getting pivotal roles of reliability.
Q. What is the manner of collection of stamp duty under the new system?
In short form, both stock exchange and depositories would collect stamp duty.
Q. When and how will the stamp duty be transferred to each State?
Answer: The collecting agents shall within three weeks of the end of each month and in accordance with the Rules made in this behalf by the Central Government, transfer the stamp-duty collected to the State Government where the residence of the buyer is located.
The collecting agent shall transfer the collected stamp-duty in the account of concerned State Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the Reserve Bank of India or the concerned State Government.
Q. What would be the fees for the collecting agent?
Answer: The collecting agent may deduct 0.2 percent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.
For an individual, it may look small but history records a crook who got fraudulent stamp papers issued and a fraud of value of Rs 700 crores was unearthed. India with billions of turnover of security transactions, state governments would earn substantially.
Q. How the State Government will communicate regarding stamp duty matter?
Answer : The State Government shall appoint a nodal officer for all official communications with the principal officers (appointed representatives of collecting agents) for the purposes of collection of stamp-duty in accordance with stamp duty Rules.
Since the collection of huge sums of commission as stamp duty is involved, I only anticipate quick action by the state government concerned.
What if collecting agents fails to transfer the duty to the State Government within the time period specified in the Stamp Act and Rules made thereunder?
I am not at all surprised by this question.
The collecting agents would have to transfer the funds within 3 weeks of collection or face a fine of not less than one lakh rupees, but which may extend up to one per cent of the collection or transfer so defaulted.
Q. How will the state governments be informed of the stamp duty collected and is there any information system developed for the quicker transmission of information in this regard?
Answer: The collecting agent will have to submit a monthly statement of details of collection including the defaulter’s list within seven days of succeeding month and a yearly statement within the end of 30th June of succeeding year failing which a fine of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less will be levied. The state government is to provide an online facility for unloading the information on time.
As a nation accustomed to notorious ways of delaying the implementation of any scheme, I wish the state governments will also face punishment if they do not act or cooperate.
Q. Who will collect the stamp duty in case of private placements/ e-IPOs through the Stock Exchange platform?
Answer: As per section 9A(1)(c), stamp duty shall be collected by the Depository on any creation or change in the records of a Depository, pursuant to the issue of securities.
This should be followed even in case of private placements/ e-IPOs through stock exchange platform.
Q. Whether stamp duty is applicable on the bonus issue of shares?
Answer: In case of a bonus issue, there is no consideration which means bonus shares are issued free to existing shareholders. Unfortunately, during the last two decades, many well earning companies though accumulated huge reserves, hardly care to issue bonus shares denying its investors of the income from their investments.
Q. Whether stamp duty is applicable on units of Mutual Fund?
Answer: Of course, the provisions of Stamp Act enforce stamp duty on units of Mutual Fund.
Q. Who will collect the Stamp duty in case of Mutual Fund and AIF transactions (sale, transfer, and issue of units in Demat mode) through recognized Stock Exchange or Depository?
Answer: As clear from the Act that in case of Mutual Fund and AIF transactions (sale, transfer and issue of units in Demat mode) through recognized Stock Exchange or Depository as defined under SCRA, 1956 and Depositories Act, 1996 respectively, the respective Stock Exchange/authorized Clearing Corporation or a Depository is already empowered to collect stamp duty as per Amended Indian Stamp Act and Rules made thereunder.
Q. On transfer of units of Mutual Funds and AIFs held in physical form, stamp duty is to be collected from the transferor. As these transfers happen outside the purview of RTAs what will be the process of collection and remittance of stamp duty?
Answer: Stamp duty has to be collected and remitted only by collecting agents (RTA for physical units and Depositories for Demat units). Where Mutual Fund and AIF units are issued in physical form, stamp duty has to be collected and remitted by RTA.
1. How stamp duty is calculated in case of issuance of Mutual fund Units?
3. Stamp duty is imposed on the value of units excluding other charges like service charge, AMC fee, GST, etc. If the units are issued for Rs 1 crore, stamp duty works out to be Rs 500.
Q. What are the stamp duty rates being implemented through the Amended Indian Stamp Act?
Answer: The web gives stamp duty for 11 items of transactions but I would give only a few items and you can refer the original for clarification.
Stamp Duty Rates w.e.f. 1st July 2020
|Issue of Debenture||0.005%|
|Transfer and Re-issue of debenture||0.0001%.|
|Issue of security other than debenture||0.005%|
|(i) Futures (Equity and Commodity)||0.002%|
|(ii) Options (Equity and Commodity)||0.003%|
|(iii) Currency and Interest Rate Derivatives||0.0001%|
|Repo on Corporate Bonds||0.00001%|
Since government securities are generally purchased in huge quantities, I am happy to see no stamp duty on their purchase.
Conclusion – We, the older generations of the 1980s were not accustomed to stamp duty collection effectively since as a nation, it was struggling to come to terms with investment in equities itself. Various banking/investment scandals that rocked and robbed the investors of their hard-earned income also dampened the growth in the securities market. With the advent of computers and online trading, the picture showed bright spots of investment and money-making. The correct approach of fixing up of stamp duty and also enabling the genuine collection of the same has emboldened the investing public and it will help us to move higher in the international investment world.