Finance Act 2019 Amendments to Indian Stamps Act, 1899

The Finance Bill, 2019, has projected certain amendments in the Indian Stamp Act, 1899 (“the Act”) introducing uniformity in the charge of stamp duty on securities whether in physical or demat form. Amendments to the Indian Stamp Act, 1899 for Rationalization of Stamp Duty & Design of Zero Evasion Collection Mechanism in Respect of Securities market instruments.

Objective

The present amendment has been brought with the intent to create a legal and institutional mechanism which would enable states to collect stamp duty on securities at “One Place” and by “One Agency on “One Instrument”. A proposal has also been made to share the stamp duty with relevant State governments based on the domicile of the buyer.

Existing Problems

• The Present system of stamping has several serious problems, first in this line is multiple rates on same instrument in different jurisdictions, which consequently results in jurisdictional disputes which paves way for rate shopping.
• There are also instances of multiple incidence of stamp duty which consequently raise overall transaction costs.

Features of the Present Bill

The Finance Bill, 2019 modifies definitions of some existing terms that have become outdated and bring them at par with the definitions of such terms specified under other statutes. It also introduces a few new definitions that have are imperative since the growth of financial securities transactions.

Following are some of the key definitions as proposed in the Finance Bill:

(a) Allotment List now means a list containing details of allotment of the securities to allottees that the issuer is required to intimate to the depository, before their names are recorded as the beneficial owner of the security as per Section 8(2) of the Depositories Act, 1996.

(b) Clearance List will now mean a list of transactions of sale and purchase relating to contracts traded on the stock exchanges. It is to be submitted to a clearing corporation in accordance with the law.

(c) The definition of Instrument, has also been expanded to incorporate any document, electronic or otherwise, created for a transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded; and any other document mentioned in Schedule I of the Stamp Act. However, the definition for the purpose of Stamp Act may not include such instruments that may be specified by the Government, by notification in the Official Gazette.

(d) Market Value, in relation to an instrument through which—

any security is traded in a stock exchange, now means the price at which it is so traded;any security which is transferred through a depository but not traded in the stock exchange, means the price or the consideration mentioned in such instrument;

any security is dealt otherwise than in the stock exchange or depository, means the price or consideration mentioned in such instrument.

Significant changes

§ Combining Stamp Duty laws for Securities

It is planned to combine the stamp duty provisions involving to issue, sale or transfer of securities under the newly introduced section 9A and 9B of the Act. It is also planned that the instrument on which stamp duty is chargeable under section 9A of the Act shall be the main instrument for the purpose of charge of the stamp duty and no stamp duty shall be charged on any other instruments relating to the aforesaid transaction. The duty will be calculated at the market value of the securities

§ Centralized Collection

A new section 9A has been inserted whereby stamp duty paid on any of the following instances will now be collected on behalf of the State Government and transferred within 3 weeks from the end of each month to the State Governments. The Central Government shall make rules for the collection and disbursement of stamp duty. As per the amendment, the following authorities would collect stamp duty on the following:

1.On sale of any securities made through a stock exchange – Stock exchange or clearing corporation appointed by it.

2.On transfer of securities for consideration made by a depository otherwise than on the basis of any transaction referred to above.

3.On issue of securities leading to creation or change in the records of depository

§ Rates of Stamp duty on issuance

1. Debuntures– 0.005% and in case of reissue it will be at 0.001%( Curently duty is  0.05% per year up to a max. of 0.25% or INR 2.5 milion, whichever is lower)

Securities (other than debenture) – 0.005% ( Currently duty is charged as per state schedule, which is usually 0.1%)

2.    Derivatives

Futures – 0.0005% ,Options – 0.003% ,Currency and interest rate derivatives – 0.0001% ,Other deriviatives – 0.0002%

3.    Government securities – 0%

4.    Repo on corporate bonds – 0.00001%

§ Stamp duty on Transfer

Transfer of dematerialized securities between beneficial owners was previously exempt from stamp duty provisions under section 8A(c)(ii) & (iii) of the Act. The same has now been deleted and the exemption is only limited to transfer of securities from a person to a depository or from a depository to a beneficial owner. While fixation of rates, rates charged by Maharashtra were taken as benchmarks as Maharashtra accounts for 70% of the total stamp duty collection in the country. The rates proposed for stamp duty on transfer of securities are as follows:

1.Transfer and re-issue of debentures – 0.0001%

2.Transfer of security (other than debenture) on delivery basis – 0.015%

3.Transfer of security (other than debenture) on non- delivery basis – 0.003%

Stamp duty payable by whom has also been clarified

1. In case of sale of security through stock exchange: Payable by Buyer

2. In case of sale of security otherwise than through a stock exchange: Payable by Seller

3. In case of transfer of security through a depository: Payable by Transferor

4. In case of transfer of security otherwise than through a stock exchange or depository: Payable by Transferor

5. In case of issue of security whether through a stock exchange or depository or otherwise: Payable by Issuer

6. In any other case: Payable by person making, drawing or executing such instrument

Conclusion

The proposed rationalized and harmonized system is expected to lead to lesser tax evasion. This will bring uniformity and affordability in the stamp duty across states. Further,  cost of collection would be substantially minimized while revenue productivity will be enhanced. Adoption of the centralized collection mechanism is expected to bring in not only more revenue but greater stability to the revenue collection by the states. Further, this system will help develop equity markets and equity culture across the length and breadth of the country, ushering in balanced regional development.

Author: Mr. Shubham Borkar, Senior Associate – Litigation and Business Development and Lakshay Kewalramani – Intern, at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at [email protected] or at www.linkedin.com/in/shubhamborkar.