Introduction: Stamp duty on the transfer of shares is a crucial aspect of India’s financial system. This article explores the complexities of this duty, especially focusing on the impact of uniform stamp duty across the country since July 1, 2020.
“Uniform Stamp Duty across the Country.”
SHORT SUMMARY:
“Stamp Duty on Transfer of Shares in India” is the topic that this editorial will cover. From a business and professional perspective, this is a crucial issue. At the time of the share transfer, this article will be helpful for everyone.
Share transfer stamp duty is an important part of India’s financial system, which is regulated by the central government. The legal documents linked to the transfer of shares are subject to this tax, which is a major component of the transaction. The complexities of Indian stamp duty on share transfers are explored in this essay.
Stamp Duty by Central/ State Govt.:
Stamp duty is a State/ Central subject in India, meaning that each state has the authority to determine its own rates and regulations for many matters.
Vide 91 of the Union List, the central government is empowered to collect stamp duty on certain instruments namely, bills of exchange, promissory notes, transfer forms for transfer of shares, debentures, bills of lading, proxies, letters of credit, and receipts. State governments do not have the power to enact any laws for payment of stamp duty in respect to these instruments. Each state will prescribe a stamp duty on instruments that fall within its list (State List) and are reflected in Schedule-1A of the Stamp Act.
In Case of transfer of securities (includes shares), The Central Government is only eligible to levy and collect stamp duty.
Uniform Stamp Duty across the Country
The power of the State Government to levy stamp duty on the issue of share certificates and transfer of shares has been taken away. Earlier, the rate of stamp duty was not uniform and it varies from state to state but now onwards, all the financial transactions will be chargeable with a uniform rate of stamp duty with effect from 1st July 2020.
For example: In Delhi, the rate of stamp duty on the issue of share certificates (physical or demat) was 0.1% which has now been changed to 0.005% w.e.f. 1st July 2020 and now it is uniform for all states.
Rate of Stamp Duty:
Rate of stamp duty is the most important point while transferring the shares. Earlier the stamp duty rate on transfer of shares was:
| 62. Transfer (whether with or without consideration)- (a) of shares in an incorporated company or other body corporate | 25 paise for every Rs. 100 or part thereof of the value of the share |
But there was amendment in ¹Finance act in 2020, when the rates of Stamp duty have been changed. After amendment w.e.f. 1st July 2020 the rate of stamp duty on transfer of shares are as follow;
| Transfer of security other than debenture on delivery basis | 0.015% |
√ Modes of payment of Stamp Duty:
For instance, for NCT of Delhi, it can be paid through the portal of Stock Holding Corporation of India Limited (SHCIL), for Maharashtra (Mumbai), it can be paid through https://gras.mahakosh.gov.in/echallan/ and for Bangalore, it can be paid through purchasing of stamp paper or by franking at the sub-registrar’s office.
√ Who is liable to pay duty on the transfer of shares?
Who was responsible for paying stamp duty was unclear under the previous system. In accordance with the terms of the agreement, the stamp duty was paid by either the buyer or the seller. Under the current system, however, stamp duty is now payable regardless of the type of transaction.
| 1. | In case of Transfer of Shares in Physical Form | Seller |
| 2. | In case of transfer through depositories otherwise than through stock exchange | Seller |
| 3. | In case of transfer through stock exchange | Buyer |
√ When is Stamp Duty required to pay?
Under the provisions of Section 17 of the Stamp Act, stamp duty must be paid or stamps must be attached either before to or at the time that the transfer deed is executed. No company is required to register for a transfer of shares in accordance with the Companies Act unless a valid instrument of transfer has been given to the company. This instrument must be fully stamped and completed by or on behalf of both the transferor and the transferee.
| 1. | Sale of securities through Depository incl. off market transfers, over the counter, etc other than through stock exchanges | Before execution of transaction |
| 2. | Issue of securities in demat mode | Before making changes in the records of Depository |
√ Cost factor for determining stamp duty:
Stamp duty will be based on the market value of securities being issued or transferred. Market Value is the consideration in any transaction and is determined as follows:
| 1. | Sale of securities through physical mode | Consideration as mentioned in Transfer Deed |
| 2. | Issue of securities in demat mode | Issue Price mentioned in Allotment List |
√ Stamp Duty on Transfer of shares through Demat:
Before the provisions of Part 1 of Chapter IV of the Finance Act were made public, there was no stamp duty that applied to the transfer of securities that were carried out in dematerialized form.
A provision in the Finance Act that allows for the imposition and collection of stamp duty on the transfer of securities in demat or electronic form has been included in an effort to put a stop to the relaxations that have been granted to such transfers.
This modification is intended to put an end to the most significant benefit that may be obtained from the dematerialization of any security.
In case of transfer of shares in Demat, Buyer shall be liable for payment of Stamp Duty.
√ Pre/ Post Rate of Stamp Duty:
| Sr No. | Particulars | Pre-Amendment | Post-Amendment |
| 1. | Issue of Share Certificates | Varies from state to state | 0.005% for all the states |
| 2. | Transfer of Shares in physical form | 0.25% | 0.015% |
| 3. | Transfer of Demat Shares | 0% (earlier, it is not chargeable to stamp duty) | 0.015% |
CONCLUSION:
In conclusion, Indian share transfer stamp duty is complex matter. As a vital part of the legal system, buyers and sellers must comply with state-specific rates and laws. Stakeholders should follow stamp duty law updates to navigate the complexity. These policies streamline share transfers and improve India’s financial integrity and openness. Market players must comprehend stamp duty before transferring shares to provide a legal and stable financial environment.
Note:
¹ The Finance Act came into effect on 1st day of April, 2019 but the amendments to Indian Stamp Act as mentioned in Part I of Chapter IV of the Finance Act, wherein the Central Government is empowered to enforce the amendments as and when it may deem fit weren’t notified until December 10, 2019 , when the Ministry of Finance, Government of India vide notification appointed 9th day of January, 2020, as the date on which the provisions of said chapter shall come into force. Further, the Central Government (Ministry of Finance) vide notification dated March 30, 2020 has deferred the effective date of amendments in Indian Stamp Act to 01st day of July, 2020.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
Author Bio
From the closer reading of the Amendment Notification, it seems that the amended rates of stamp duty are applicable Only for Issue or Transfer of Shares / Securities in DEMAT Mode and NOT for Physical Mode of Issue or Transfer of Shares / Securities, since (1) in online / demat mode of Issue or Transfer of Shares, it was difficult to identify the real place / jurisdiction for issue / transfer of shares for the purpose of payment of stamp duty to the appropriate state / central, and (2) Various States still demands the stamp duty on Issue of shares as per the respective State Stamps Act and the entry / article for the Stamp Duty on Issue of Shares is not yet deleted from the Schedule of the Stamp Act of the respective state.
From the closer reading of the Amendment Notification, it seems that the amended rates of stamp duty are applicable Only for Issue or Transfer of Shares / Securities in DEMAT Mode and NOT for Physical Mode of Issue or Transfer of Shares / Securities, since (1) in online / demat mode of Issue or Transfer of Shares, it was difficult to identify the real place / jurisdiction for issue / transfer of shares for the purpose of payment of stamp duty to the appropriate state / central, and (2) Various States still demands the stamp duty on Issue of shares as per the respective State Stamps Act and the entry / article for the Stamp Duty on Issue of Shares is not yet deleted from the Schedule of the Stamp Act of the respective state.