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 Buyer 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 Depository Transferor At the time of transfer Consideration amount
Issue of securities Depository Issuer 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:

Instruments Rate
Issue of securities other than debentures 0.005 %
Transfer of security other than debenture on delivery basis 0.015 %
Transfer of security other than debenture on non- delivery basis 0.003 %
Futures derivatives (equity and commodity) 0.002 %
Options derivatives (equity and commodity) 0.003 %
Currency and interest rate derivatives 0.0001 %
Other derivatives 0.002 %
Government securities 0.00 %
Repo on corporate bonds 0.00001 %
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Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.

We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.

The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.

We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of the JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India. 
This newsletter contains general information available in public domain at the time of its preparation. It is intended as a general news update and is not intended to be comprehensive nor to provide specific business, financial, investment, legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this newsletter is neither a solicitation nor an invitation of any sort whatsoever or a source of advertising from our firm or any of its partners or lawyers or other professionals to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this news alert, this cannot be guaranteed, and neither our firm nor any related person/entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.
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