Explore the latest amendments to India's stamp duty rules on shares, covering uniform rates, demat securities, and exemptions. Understand how these changes impact investors.
Introduction
In this blog post, we’ll discuss the key highlights of these amendments, providing you with a clear understanding of the latest provisions on the Payment of Stamp Duty on shares.
Stamp duty is an integral part of financial transactions, and in the Indian context, it plays a crucial role in share trading. The Central Government of India made significant amendments to the Indian Stamp Act in 2019, which came into effect on 1st July 2020. These amendments brought about uniformity in stamp duty rates across the country and introduced changes in the way stamp duty is collected on shares, both in physical and demat form.
Key Highlights of the Amendments
- Uniform Stamp Duty Across the Country
One of the most significant changes introduced by these amendments is the establishment of uniform stamp duty rates for shares across India. This move aimed to simplify the stamp duty structure and reduce confusion among investors.
2. Rates of Stamp Duty
The revised stamp duty rates for shares are as follows:
- 0.005% on the issue of share certificates
- 0.015% on the transfer of shares, whether in physical or demat mode
This change ensures that the mode of holding shares, whether physical or demat, no longer affects the stamp duty rate.
3. Payment of Stamp Duty on Demat Securities
The mechanism for paying stamp duty on demat securities has undergone significant changes. Let’s break it down:
- Issue of Securities in DEMAT Mode:
Stamp duty on the allotment list is collected on behalf of the State Government by the depository.
- Issue of Securities in Physical Mode:
For shares issued in physical form, the stamp duty payable is 0.005% of the total market value of the shares. This value is based on the price/consideration mentioned in the share certificate.
The collection of stamp duty for physical shares follows the existing procedures set by respective State Governments.
4. Stamp Duty on Bonus Issue of Shares
The amendments clarified that no stamp duty is applicable to bonus issues since there is no consideration involved in such transactions. This provision eases the compliance burden for companies issuing bonus shares.
5. Stamp Duty on Exercise of ESOP
Stamp duty is now payable on the exercise price, which is the price/consideration mentioned in the allotment list when employees exercise their stock options (ESOP). This change aligns stamp duty with the actual transaction value.
6. Stamp Duty on Off-Market Transfer of Securities Without Consideration
Transactions like gifts, legacies, and transmissions of securities without consideration are exempt from stamp duty. The stamp duty is calculated based on the market value, considering the price or consideration involved.
7. Stamp Duty on Issue of Duplicate Share Certificates
In cases of issuing duplicate share certificates, stamp duty is not applicable. This is because the duty has already been paid on the principal instrument chargeable under Section 9A for the initial transaction.
8. Transfer of Securities in Demat and Physical Mode
Stamp duty on the transfer of securities differs based on the mode:
Transfer of Securities in Demat Mode: When a transfer is not conducted through a stock exchange, the depository collects the stamp duty on behalf of the State Government.
Transfer of Securities in Physical Mode: The stamp duty payable for transferring physical shares is 0.015% of the total market value, following the price/consideration mentioned in the share certificate.
| Particulars | Rate of Stamp Duty | Paid By | Paid To |
| Issue of Shares in Physical Form | 0.005% | Issuer | State Government |
| Issue of Shares in Demat Form | 0.005% | Transferor | Depository (NSDL/CDSL) |
| Transfer of Shares in Physical Mode | 0.015% | Transferor | State Government |
| Transfer of Shares in Demat Mode (Sale through Stock Exchange) | On Delivery basis: 0.015% On Non-delivery basis: 0.003% | Transferee | Stock Exchange/Clearing Corporation |
Conclusion
The latest amendments to the Indian Stamp Act brought about significant changes in the payment of stamp duty on shares. These changes, including uniform rates and revised mechanisms for demat and physical shares, aim to simplify and streamline the stamp duty process.
Investors and companies should be aware of these provisions to ensure compliance and make informed decisions in the Indian stock market.
Stay updated on the latest regulations with the help of Vakilsearch experts and navigate the world of share trading effectively!
Frequently Asked Questions (FAQs)
[sc_fs_multi_faq headline-0=”h3″ question-0=”1. Is stamp duty applicable to bonus issues of shares?” answer-0=”No, stamp duty is not applicable to bonus issues of shares as there is no consideration involved in such transactions.” image-0=”” headline-1=”h3″ question-1=”2. How is stamp duty calculated for shares issued through ESOP (Employee Stock Option Plans)?” answer-1=”Stamp duty is payable on the exercise price, which is the price/consideration mentioned in the allotment list when employees exercise their stock options (ESOP). ” image-1=”” headline-2=”h3″ question-2=”3. Are off-market transfers of securities without consideration subject to stamp duty?” answer-2=”No, off-market transfers such as gifts, legacies, and transmissions of securities without consideration are exempt from stamp duty. Stamp duty is calculated based on market value when consideration is involved.”Also, Read:
- Why Share Purchase Agreement is Important?
- How to Draft Share Purchase Agreement
- Reasons to Have a Shareholders Agreement
