Stamp Duty on Issuance of Share Certificates
Stamp Duty on Issuance of Share Certificates
A Stamp duty is a tax imposed on legal documents crucial in validating transactions like property transfers and share certificates. It holds significant importance as a revenue source for the government, ensuring proper documentation and legal recognition of financial activities. Share certificates represent ownership in a company and act as vital proof; thus, the payment of stamp duty becomes essential for their legal validity. Failing to pay stamp duty is not just a financial risk but also attracts penalties. This article delves into the nuances of stamp duty concerning share certificates.
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You might take a small piece of ownership of the company by buying shares. These shares are represented by the official document called share certificates. But your certificate needs legal recognition to secure ownership and exercise shareholder rights. You can officially confirm your ownership by paying the stamp duty. It helps your document acquire legal validity and be recognized by the courts. It ensures the security of your investment and prevents fraudulent activities on your shares.
Importance of Paying Stamp Duty on Share Certificates
- Legal Validity: Share certificates serve as documents confirming your ownership of shares in a company. Properly stamped certificates ensure their validity and enforceability in disputes or legal proceedings.
- Compliance with the Law: Non-payment or incorrect payment of stamp duty violates the Indian Stamp Act, attracting potential penalties and legal repercussions.
- Smooth Transactions: Properly stamped certificates facilitate hassle-free future transfer or sale of shares. Delays or lack of proper stamp duty can complicate future transactions and attract additional costs.
- Protection of Shareholder Rights: Ensuring rightful payment of stamp duty safeguards the rights and interests of shareholders. It contributes to a transparent and fair shareholder system within the company.
Key Highlights of Amendment of Indian Stamp Rule:
The Indian Stamp Act, enacted in 1899, is a legal framework that establishes the requirement for documentation and validation of ownership through a system of stamp duty. After the amendment of Indian Stamp Rules, 2019, big change happened in the structure of Indian Stamp Act 1899. This applies to all kinds of transactions, and the manner it functions. Before knowing about the stamp duty regarding share certificates, it is better to understand the shifts in the Indian Stamp Act. Below, we have provided the major highlights of the amendment,
- Uniform Stamp Duty: The amendment ensures uniformity in stamp duty rates and the process of levying and collecting stamp duty across the country.
- Transfer of Securities (Physical Mode): Stamp duty for transferring shares in physical form is set at 0.015% of the total market value of the shares.
- Stamp Duty on Bonus Shares: Stamp duty on bonus shares is levied based on the market value, considering the price or consideration involved in the issuance.
- Stamp Duty on ESOP Shares: Stamp duty for shares issued through ESOP (Employee Stock Ownership Plans) is calculated on the exercise price mentioned in the allotment list.
- Duplicate Share Certificates: No stamp duty is required to issue duplicate share certificates, as it is not considered a case of sale, transfer, or issuance of securities.
- No Exemption for Dematerialized Form: The amendment removes the stamp duty exemption for transferring shares in the dematerialised form.
- Transfer of Shares by Gift: A gift deed must be executed for shares transferred as gifts, and stamp duty is applicable based on the market value of the shares at the date of the gift.
Rates of Stamp Duty for Share Certificates
After the amendment, the stamp duty rate for issuing share certificates is standardised across the country. The table below shows the pre-amendment and post-amendment rates for share certificates and transfer of shares in physical form and Demat.
| Sr. No | Particulars | Pre-Amendment Rates | Post Amendment Rates |
| 1 | Issue of Share Certificates | Varies from state to state | 0.005% for all states |
| 2 | Transfer of Shares in Physical Form | 0.25% | 0.015% |
| 3 | Transfer of Demat Shares | NIL (earlier, it was exempt from duty) | 0.015% |
Note: The stamp duty payment calculator on the NSDL (National Securities Depository Limited) website can be used.
Timeline for Stamp Duty Payment for Share Certificates
The Indian Stamp Act mandates the payment of stamp duty on share certificates within 30 days of the issuance of the share certificate or transfer date. This deadline applies to all states and territories in India. Failure to adhere to this timeframe can result in penalties, fines, and potential legal action.
How to Pay the Stamp Duty?
You can pay the stamp duty both online and offline. Below, we have given the step-by-step process to pay the stamp duty.
e-Stamping Method:
Step 1: Go to the NSDL e-Stamping portal
Step 2: Choose “Issue of Share Certificate” or “Transfer of Share Certificate” based on your action.
Step 3: Fill in the following details:
- Enter the state of company registration.
- Provide the value of the shares involved.
- Add any additional information prompted by the platform.
Step 4: The platform will display the required stamp duty amount. Proceed to make the payment online using net banking, debit card, credit card, etc.
Step 5: Upon successful payment, download and print the e-Stamp certificate. Submit it to the company issuing the share certificates.
Physical Stamping Method:
Step 1: Get a challan form from authorized offices, banks, or government treasury offices.
Step 2: Specify the transaction type, state, value of shares, and required stamp duty amount.
Step 3: Purchase physical stamps of the appropriate denomination to match the stamp duty amount.
Step 4: Affix the stamps securely on the challan form. Submit the filled challan and stamped form to the share certificate company.
Penalty for Non-Payment of Stamp Duty
Below, we have provided the general penalty structure for not paying the stamp duty,
- Late payment fee: A late payment fee is typically levied after the 30-day deadline for paying stamp duty. This fee may be a fixed amount or a percentage of the unpaid duty, varying across states.
- Interest on unpaid duty: Interest accrues on the unpaid stamp duty amount for the entire delay period. The interest rate is usually based on the prevailing bank rate, adding a significant financial burden to the overdue amount.
- Prosecution: In extreme cases of willful non-payment or significant delays, legal action or prosecution might be initiated under the Indian Stamp Act.
Note: As mentioned, it is a general penalty structure, but it can be changed from state to state or the company-registered location. Go to the sub-registrar’s office to get the right information.
Conclusion
We have dealt with how much significance stamp duty has on share certificates, rates, and how to pay it. It is necessary to pay the stamp duty on your share certification to get legal recognition for your ownership and to avoid potential legal issues. Pay your stamp duty using the steps outlined in the article within the specified time to avoid the penalty.
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