Introduction: Gifting shares is a thoughtful financial gesture, but the impact of stamp duty often lurks in the shadows. This article unravels the complexities of stamp duty on gifted shares, providing insights for both givers and recipients.
“Gifting shares: a present that grows in value.”
SHORT SUMMARY:
The act of gifting shares is a thoughtful and strategic financial gesture that can have lasting implications for both the giver and the recipient. However, one aspect that often goes overlooked is the potential impact of stamp duty on such transactions. In this article, we’ll delve into the nuances of stamp duty on the gift of shares, shedding light on what individuals need to consider when navigating this financial terrain.
What is Stamp Duty?
Stamp duty is a tax imposed by governments on various types of transactions, and its application can vary depending on the jurisdiction. When it comes to the gift of shares, stamp duty may play a role, and it is crucial for both parties involved to be aware of its implications.
Whether Universal Stamp Duty?
Whether the application of stamp duty on the gift of shares is universal is a matter of debate. The answer to this question can be found in the amendment provided below:
The Finance Act, 2019, had introduced certain amendments in the Indian Stamp Act, 1899, to streamline the levy and collection of stamp duty on securities transactions. The Ministry of Finance notified the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019, on 10 December 2019, to regulate the centralised mechanism for the collection of stamp duty across the country. These amendments have come into force with effect from 1 July 2020.
Universal Rate of Stamp Duty on Transfer of Shares:
w.e.f. 1st July 2020 the rate of stamp duty on transfer of shares is universal throughout the country. The rate of stamp duty on Transfer of shares is 0.015% of Market Value of the shares.
Therefore, one thing is clear the rate of stamp duty on transfer of shares/ gift of shares are universal throughout the country.
IDENTIFICATION OF STAMP DUTY ON GIFT OF SHARES:
a) Procedure for transfer of shares by way of Gift
i. Preparation of Gift Deed for transfer of Equity share or Preference Shares;
ii. Delivery of Gift Deed along with share certificate by Donor in favour of Donee
iii. Gift Deed along with share certificate should be accepted by or on behalf of Donee;
iv. Execution of SH-4
v. Delivery of duly dated and execute transfer documents by gift, by Donor or Donee to the Company within 60 days from the date of its execution;
vi. The company should call the Board meeting, which is required to be convened within a period of 1 month from the receipt of transfer documents by way of Gift;
vii. Convene the meeting and pass the Board Resolution for transfer of shares by way of Gift;
viii. Company will endorse name of transferee back side of the Share Certificates.
ix. The company should deliver the share certificate within one month from the receipt by the Company of the transfer documents by gift.
b) Stamp Duty:
As per Indian Stamp Act, the stamp duty shall be calculated on the basis of market value of securities which are subject to issuance or transfer, as the case may be.
c) Market Value: The definition of market value provides as follows: 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 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.
(iv) Any securities sale through physical mode, means consideration mentioned in transfer deed.
d) Note: As per above mentioned provisions, Stamp duty shall be paid on the market value of shares. However, there is no amount involved in Gift of shares. How to calculate stamp duty on the same:
In the absence of a specific provision for market value in case of transfers without consideration, it seems that such transactions would not be subject to stamp duty in the absence of any other instrument of transfer.
The Government of India has issued frequently asked questions (FAQs) 7 for the implementation of amendments in the Act and the Rules made thereunder. Questions15 and 24 of the FAQs clarify that no stamp duty is payable in relation to transactions without consideration, i.e., gift, bonus shares, transmission of securities.
Therefore, one can opine that stamp duty is to be collected on market value based on price or the consideration involved. Accordingly, since consideration involved in case of gift is “NIL”, no stamp duty will be levied in such transaction.
CONCLUSION:
A thoughtful and prudent financial move could be to give shares as a gift, but you must consider the stamp duty consequences. Key components in successfully navigating this area of financial planning include familiarity with local rules, consideration of the parties’ relationships, and appropriate share valuation. To make sure the gift of shares is both financially prudent and a considerate gesture, it’s a good idea to consult evaluate the stamp duty.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
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