Indian Stamp Rules 2019
Indian Stamp Rules 2019
The Government of India (GoI) introduced the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019. The rules provide a consistent basis for the levy of stamp duty on securities-related transactions. The applicability of stamp duty on the issue of listed securities will be determined based on the Stamp Act, 1899. The company which issues the securities should pay stamp duty as per Section 8A of the Act. The requirement to pay the stamp duty will arise whether or not the securities are issued in dematerialised form.
States have the right to determine how the Act should apply to securities-related transactions. Hence, the GoI observed a lack of uniformity in the procedures which govern the collection of stamp duty. Thus, the GoI introduced the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019. On 8th January 2020, the GoI issued Notification GSR 19(E). The notification states that the rules will come into effect on 1st April 2020.
Stamp Duty on Sale of Securities
- The rate os stamp duty, which should be applied depends on the type of securities which are issued. For government securities, stamp duty need not be paid. For debentures, the rate is 0.0005%. For other securities, the rate is 0.005%.
- The stamp duty must be collected on the day of settlement. The day of settlement refers to the day on which ownership of the securities passes to the buyer.
- The security transferred may be an option instrument. In such cases, the buyer should separately identify the premium on each transaction. The premium paid should be reported to the collection agent.
- The securities may be allotted through the private placement mode. In such cases, the stamp duty should be borne by the person who is making the offer. The stamp duty shall be calculated on the market value of the security or the offer price, whichever is higher. The stamp duty will become payable once the offer is completed.
- The consideration for the offer may not be fully settled. Alternatively, the parties may agree that the consideration can be settled in the future on an instalment basis. In such cases, stamp duty should be collected on the entire sale consideration. The consideration is based on the amount reported to the stock exchange.
- Stock exchanges should provide information to the concerned depository about the transfers executed on the trading platform. The information should be furnished before the day on which the settlement obligation is finalised by the Clearing Corporation of India Limited (CCIL). The requirement to provide information to stock exchanges applies to securities which are held in the dematerialised form.
Sale of Securities Through Depositories
- Transactions which involve a transfer of listed securities can be performed exclusively through depositories. Such transfers can be classified into delivery and non-delivery transactions. Under the delivery model, the parties transact intending to transfer ownership. Under the non-delivery model, the parties transact intending to earn revenue without a change in ownership. Hence, revenue is obtained from fluctuations in the market value of the securities. The CCIL determines whether a transaction falls under the delivery or non-delivery model.
- The depository may issue a certificate of security for the securities. The certificate is issued when the securities are maintained in a dematerialised format. In such cases, stamp duty should be paid in the same manner as a duplicate share certificate. The stamp duty should be collected before the occurrence of off-market transfers if any.
- Depositories are allowed to collect stamp duty from the transferor. The amount of stamp duty should be calculated as a percentage. The percentage should be calculated on the amount mentioned in the delivery instruction slip. The delivery instruction slip can be submitted physically or electronically. However, in the case of dematerialised holding of securities, the delivery instruction slip should be presented in the electronic mode.
- Depositories should ensure that the following requirements relating to disclosure are satisfied before remitting the stamp duty to the collection agent:
- Disclosure of the manner of identification of market transfers
- Disclosure of the manner of ascertainment of sale consideration
- Disclosure of reasons for transfer
- Disclosure of whether consideration is payable in instalments or as a lump-sum
- Disclosure of the extent of consideration already paid and the amount remaining
Recovery of Stamp Duty
- The applicable rate of stamp duty should be recovered before the transaction is updated in the digital records of the depository. Further, at the time of allotting securities, the issuing company should submit an allotment list to the depository.
- Securities can be transferred on account of the fulfilment of a pledge. In such cases, stamp duty should be collected from the lender. The applicable percentage of stamp duty is calculated on the market value of the securities.
- A company may perform a stock split, consolidation, mergers and acquisitions. On account of such actions, additional securities may be created, or existing securities can be destroyed. In such cases, the depository should not collect stamp duty. If there is no new issue to the investors, there is no requirement to charge stamp duty. However, in case there is a change in beneficial ownership of the securities, stamp duty should be paid.
- In the general body meeting of a company, an agreement may be executed for purchasing paid-up capital. The capital may belong to minority shareholders. In such cases, the depository should levy stamp duty from the company making the issue of additional securities.
- A collection agent is a person responsible for collecting the stamp duty from the stock exchanges and depositories. He should also remit the stamp duty to the government before the seventh of the following month. The stamp duty collected should be rounded off to the nearest rupee.
- The collection agent can deduct facilitation charges before transferring the stamp duty funds to the government. The agent is eligible to collect a maximum of 0.2 per cent as facilitation charges. The rate of 0.2 per cent should be applied to the total value of stamp duty obtained.
- The collection agent should deposit the funds of stamp duty received in one of the following accounts:
- The account maintained by the state government with the Reserve Bank of India (RBI)
- The account maintained with any nationalised bank, after obtaining permission from the state government
- The collection agent should submit a return before the seventh of every month. The purpose of the return is to inform the government about the amount of stamp duty collected. A yearly return should also be submitted. The last date for filing the return is thirtieth June of every year. The return should be forwarded to the treasury department of the state government.
- The return requires the agent to inform the government in case there are defaulters. The return can be submitted manually or through the electronic mode. However, electronic filing of the return is possible exclusively when the state government has provided a website. The website should allow returns to be filed in the electronic mode. In case there is no website, the return should be filed manually.
- In case the collection agent is a company, the return should be signed by the Managing Director (MD). In other cases, the principal officer of the organisation should sign.
- The return should be filed as per the prescribed format. The format is given below for reference: