Have you issued or transferred any securities post 1st July 2020 or planning to do so? The rule of payment of stamp duty on shares has now been amended by the Ministry of Revenue.
The Central Government notified the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 with effect from 1st July 2020.
In this article, we intend to cover stamp duty aspects in the case of the issue and transfer of shares in both, physical as well demat form. The following are the key highlights of the amendments:
|HIGHLIGHTS OF THE AMENDMENTS|
Please continue to read below where we have elaborated these amendments a little more.
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.
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.
✔ On Physical Share Certificates: There is no change in the manner of collection of the stamp duty in case of physical shares, the stamp duty is to be paid in the existing manner as prescribed by the respective State Governments.
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.
Following are the pre and post amendment rates of stamp duty on issue of share certificates and transfer of shares as per schedule I of the Stamp Duty Act, 1899 (“the Act”):
|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%|
As per the latest amendment in the Companies Act, 2013, even the unlisted public companies shall require to hold and transfer its securities in dematerialized form only (Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014).
However, no such provisions are prescribed for the private companies. Thus, physical share certificates can only be issued by private companies. However, a private limited company can voluntarily opt for dematerialized securities.
Pursuant to the provisions of the Indian Stamp Act, 1899 the shares certificates are required to be stamped within 30 days from the date of issue of share certificates. Further, the company needs to issue the share certificates within two months from incorporation date. Where additional shares are allotted to the new or existing shareholders, the share certificates should be issued within two months from allotment date.
The notified rules do not have a significant impact on the issue and transfer of share certificates in physical form. The following are the certain key points which are required to be kept in mind for the purpose of payment of stamp duty on physical shares:
○ Rate of stamp duty: The rate of stamp duty is 0.005% (issue of share certificates) or 0.015% (transfer of shares) as the case may be.
It may be noted that in case the shares issued or transferred by the Company or shareholders up to the date of 30th June 2020, the stamp duty shall continue to be paid by existing stamp duty structure as prescribed by the respective State Governments.
○ Place of levy of stamp duty: In case of issue of shares, the place where the registered office of the Company is situated and in case of transfer, the place where documents are executed.
○ Stamp duty levy on (Value):
|Sl No.||Particulars||Stamp Duty|
|1||In case of issue of share certificates||at a price on which shares are issued|
|2||In case of transfer of shares||on consideration value|
|3||In case of gift||on Market Value|
The notified rules have created the legal and institutional mechanism to enable States to collect stamp duty on issue and transfer of shares at one place by one agency (through the Stock Exchanges or Clearing Corporations authorized by the Stock Exchange or by the Depositories) on one instrument.
In case of transfer of shares in demat form through stock exchanges, the stock exchanges shall collect the stamp duty. However, in case of the initial issue of shares or transfer of shares other than through stock exchanges in demat form, the depositories shall collect the stamp duty.
The Central Government has introduced the new centralized mechanism in order to streamline the process of payment and collection of stamp duty on the securities. It will facilitate the ease of doing business and will bring in uniformity and affordability of the stamp duty on securities across States, as it will work as a great equalizer for all the States. Further, the cost of collection would be minimized while revenue productivity is enhanced.