This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.
Date: 6 February 2019
Interim Budget 2019: Key changes proposed in Stamp Duties
The Indian Stamp Act, 1899 (“Act”) is proposed to be amended vide the Finance Bill, 2019 to bring uniformity in the stamp duty rates across the country for financial securities transactions. The levy of stamp duty on financial securities instruments by the states will be collected at one place through one agency, i.e. through stock exchanges or its clearing corporation or depositories and will be appropriately shared with the respective State Governments based on state of domicile of the ultimate buying client. Earlier, different policies were followed pertaining to collection, with stamp duty rates varying across states.
Indian Stamp Act, 1899
The Constitution of India empowers the Central government to collect stamp duty on all documented financial instruments including bills of exchange, promissory notes, transfer forms for transfer of shares, debentures, bills of lading, debentures, proxies and letters of credit. In terms of Section 3 of the Act enacted by the Central Government, every instrument executed in the territories of India and received in India after being executed outside India shall be chargeable with the duty indicated in the Schedule I of the Act.
Key changes proposed
I. Significant changes in definitions under the Act:
Earlier the definition of “instrument” was limited to include every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. However, the Finance Bill, 2019 seeks to amend it to include a document, electronic or otherwise, created for transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded.
The new definition of “securities” will include usance bills, commercial papers, certificate of deposits and other short terms instruments of original or initial maturity of one year or as provided by RBI. The same has been done with an intention to include even negotiable instruments under its purview.
The existing definition of "bond" is proposed to be modified to exclude debentures and define it separately. Definition of “debenture” proposed to be inserted includes usance bills, commercial papers, certificate of deposits and other short terms instruments of original or initial maturity of one year or as provided by RBI.
"Market Value" has been defined as well as explained under proviso to Section 21 as under:
For security traded in a stock exchange – market value will be trading price
For security transferred by depository but not traded in the stock exchange – market value will be consideration mentioned in the instrument
For security dealt otherwise than in the stock exchange or depository - market value will be consideration mentioned in the instrument
Options in any security - premium paid by buyer
Repo on corporate bonds - Interest paid by the borrower
Swap - Only first leg of cash flow
II. Stamp Duty to be charged only on the Principal Instrument
As per the amended Section 4 of the Act, now the Stamp duty will be charged only on the principal instrument and no stamp duty shall be charged on any other instruments relating to any such transaction.
III. Removal of Stamp Duty Exemption in case of transaction of securities in demat form
The substituted Section 8 A provides that upon issuance of securities by a company or issuer to their respective depositories, the same is chargeable with duty on the total amount of security issued. However, the transfer of securities held in demat form, were not chargeable with stamp duty. The proposed amendment to section 8A seeks to remove the exemption given to transfer of beneficial ownership of securities and mutual funds, dealt with by a depository.
IV. Instruments chargeable with duty and Liability to pay stamp duty
Section 29 has been proposed to be amended to provide with details of person who shall be liable to pay stamp duty. The obligation to pay stamp duty in case of transactions for sale or transfer of security through a stock exchange or otherwise is to be borne in the following manner:
For transactions in stock exchanges and depositories:
As per Section 9A of the chapter “AA” proposed to be inserted, the stamp duty for transactions in stock exchanges and depositories will be levied on the following and will be collected by and from in the manner given below:
Nature of transaction
Stamp duty to be collected by
Stamp duty to be collected from
When will it be collected
Will be calculated on
Sale of securities through a stock exchange
Stock exchange or clearing corporation
At the time of settlement of transactions
Market value of such securities
Transfer of securities by a depository, otherwise than on the basis of any transaction on stock exchange
At the time of transfer
Issue of securities
At the time of creation or any change in records of a depository
Market value of securities specified in allotment list
For transactions other than through stock exchanges and depositories:
The stamp duty for transactions other than through stock exchanges and depositories will be levied on the following and will be by as provided under the section 9B proposed to be inserted:
Nature of transaction
Stamp duty to be paid by
When will it be collected
Will be calculated on
Issue of securities otherwise than on stock exchange or depository
Issuer at the place where registered office is located
On each issue
Market value of such securities
Sale or transfer or reissue of securities for consideration is made otherwise than through a stock exchange or depository
Seller or transferor or issuer, as the case may be
On each such sale or transfer or reissue
Consideration specified in such instrument
V. Collection mechanism for stamp duty
The stock exchange or the clearing corporation authorized by it or the depository is obligated to transfer the stamp duty collected on behalf of the state Government to such State Governments determined as under within three (3) weeks of the end of each month:
State Government eligible to receive stamp duty
Where buyer is located in India
Where the residence of buyer is located
Where buyer is located outside India
Where the registered office of the trading member or broker of such buyer is located. In case no such trading member or broker, where the registered office of participant is located.
Issue of securities by issuer otherwise than through a stock exchange or depository,
Place where its registered office is located
Section 62A (1) provides fine payable in case of failure to collect duty or failure to transfer duty to the State Government within 15 days of expiry of the 3 weeks’ time specified above, which shall not be less than one lakh rupees, but which may extend up to one per cent of the collection or transfer so defaulted.
VI. Obligation to provide details to the Government
The stock exchange or the authorized clearing corporation and depository shall submit to the government details of the transactions in the manner to be prescribed in the rules. As per Section 62A(2) proposed to be inserted, failure to submit or submission of false document or declaration will be punishable with fine of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.
VII. Revised rates of stamp duty – Changes in Schedule I
Duty on debentures (Article 27)
As per the proposed to be amended Article 27, pursuant to the Finance Bill, 2019, ad-valorem duties will be as under:
In case of issue of debentures - 0.005%
In case of transfer and re-issue of debenture - 0.0001%
Duty on security other than debentures (Article 56)
The proposed to be inserted Article 56, specifies the rates of stamp duty in case of securities other than debentures, for example equity shares, preference shares, warrants, which is given as under:
Issue of securities other than debentures
Transfer of security other than debenture on delivery basis
Transfer of security other than debenture on non- delivery basis
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