The Central Government had amended the Indian Stamp Act, 1899 (‘the Act’) on 01.04.2019. The implementation of the amended provisions of the #IndianStampAct, 1899 brought through #Finance Act, 2019 and Rules made thereunder has come into force on 01.07.2020.
Accordingly, the Central Government has notified implementation of the amendments in the Act, and in Indian Stamp (Collection of stamp duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 [(‘Stamp Rules’) or (‘Amendments’)] which will facilitate ease of doing business. This will also bring uniformity and affordability of the stamp duty on securities across States and thereby build a PAN India securities market.
The Amendments have been carried out with respect to securities market transactions. This provides the manner in which #stampduty shall be levied and collected by such agencies and then transferred to the concerned state governments.
The basic framework which is being created by the Central Government through the Amendments is creation of the legal and institutional mechanism to enable States to collect stamp duty at one place by one agency. The collection of Stamp Duty shall be carried out through the Stock Exchanges or Clearing Corporations authorised by the Stock Exchange or by the Depositories, when any security is being sold, transferred or issued through these platforms.
The Central Government has also notified the Clearing Corporation of India Limited (CCIL) and the Registrars to Issue and Share Transfer Agents to act as collecting agents. The collecting agent may deduct 0.2 per cent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.
The collecting agents have to transfer collected stamp duty to the State Government within three weeks of the end of each month. Any collecting agent who fails to collect the stamp duty or fails to transfer stamp duty to the State Government within fifteen days of the expiry of the time specified, shall be punishable with fine 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.
The stamp duty rates being implemented through the Amended Indian Stamp Act with effect from 01.07.2020 are:
Stamp Duty Rates
| Instrument | Rate |
| Issue of Debenture | 0.005% |
| Transfer and Re-issue of debenture | 0.0001%. |
| Issue of security other than debenture | 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% |
| Derivatives–– | |
| (i) Futures (Equity and Commodity) | 0.002% |
| (ii) Options (Equity and Commodity) | 0.003% |
| (iii) Currency and Interest Rate Derivatives | 0.0001% |
| (iv) Other Derivatives | 0.002% |
| Government Securities | 0% |
| Repo on Corporate Bonds | 0.00001% |
The benefit of such Amendments is that cost of collection would be minimised while revenue productivity is enhanced. Further, this system will help develop equity markets and equity culture.
Some Key Highlights of Stamp Rules Amendments:
The amendments inter-alia provide for the following structural reforms—
- “States cannot collect stamp duty on any secondary record of transaction associated with a transaction on which the depository/stock exchange has been authorised to collect the stamp duty. This is to avoid multiple incidences of taxation.
- The collecting agents shall within three weeks of the end of each month and in accordance with the Rules made in this behalf by the Central Government, transfer the stamp-duty collected to the State Government. The concern State Government will be where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant. The collecting agent shall transfer the collected stamp-duty in the account of concerned State Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the Reserve Bank of India or the concerned State Government.
- In the extant scenario, stamp duty was payable by both seller and buyer whereas in the new system it is levied only on one side (payable either by the buyer or by the seller but not by both, except in case of certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion).
- The collecting agents shall be the Stock Exchanges or authorized Clearing Corporations and the Depositories.
- For all exchange based secondary market transactions in securities, Stock Exchanges shall collect the stamp duty; and for off-market transactions (which are made for a consideration as disclosed by trading parties) and initial issue of securities happening in demat form, Depositories shall collect the stamp duty.
- The Central Government has also notified the Clearing Corporation of India Limited (CCIL) under the jurisdiction of RBI and the Registrars to an Issue and/or Share Transfer Agents (RTI/STAs) to act as a collecting agent. The objective is to bring OTC derivative transactions reported to CCIL and physical space (non-demat) transactions in mutual funds handled through RTI/STAs under the ambit of stamp duty regime so as to avoid any tax arbitrage.
- The collecting agents shall within three weeks of the end of each month transfer the stamp-duty collected to the State Government where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant.
- The collecting agent shall transfer the collected stamp-duty in the account of concerned State Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the Reserve Bank of India or the concerned State Government.
- The collecting agent may deduct 0.2 per cent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.
- For many segments, there is reduction in duty. For example, the rate prescribed is lower for issue of equity/debentures and for transfer of debentures (including re-issue) to aid capital formation and to promote corporate bond market.
- For equity cash segment trading (both delivery and non-delivery-based transactions) and options, since rates are to be charged only on one side in line with the new scheme, it can be stated that there is an overall reduction in tax burden.
- Secondary market transfer of instruments which are traded with differences in a few basis points, like interest rate / currency derivatives or corporate bonds are being charged at a very lower rate from the existing rates. For the newly introduced ‘repo on corporate bonds’, a far lower rate is specified, since similarly positioned repo on Government Securities is not subject to duty.
- No stamp duty shall be chargeable in respect of the Instruments of transaction in stock exchanges and depositories established in any International Financial Services Centre set up under section 18 of the Special Economic Zones Act, 2005.
- Tax arbitrage is avoided by providing the same rate of stamp duty for issue or re-issue or sale or transfer of securities happening outside stock exchanges and depositories.
- Mutual funds, being delivery-based transactions in securities, were supposed to have been paying the duty as per various State Acts. All mutual fund transactions are thus liable for stamp duty and the new system has only standardized the charges across states and the manner of collection of stamp duty.”
[Source: PIB Release ID: 1635399]
Lakshmi Vishwakarma
Associate
The Indian Lawyer
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