Editorial 

Stamp Duty on Transfer of Shares

(01^st March 2024)

“Uniform Stamp Duty across the Country.”

SHORT SUMMARY:

"Stamp Duty on Transfer of Shares in India" is the topic that this editorial will cover. From a business and professional perspective, this is a crucial issue. At the time of the share transfer, this article will be helpful for everyone.

Share transfer stamp duty is an important part of India's financial system, which is regulated by the central government. The legal documents linked to the transfer of shares are subject to this tax, which is a major component of the transaction. The complexities of Indian stamp duty on share transfers are explored in this essay.

Stamp Duty by Central/ State Govt.:

Stamp duty is a State/ Central subject in India, meaning that each state has the authority to determine its own rates and regulations for many matters.

Vide 91 of the Union List, the central government is empowered to collect stamp duty on certain instruments namely, bills of exchange, promissory notes, transfer forms for transfer of shares, debentures, bills of lading, proxies, letters of credit, and receipts. State governments do not have the power to enact any laws for payment of stamp duty in respect to these instruments. Each state will prescribe a stamp duty on instruments that fall within its list (State List) and are reflected in Schedule-1A of the Stamp Act.

In Case of transfer of securities (includes shares), The Central Government is only eligible to levy and collect stamp duty.

Uniform Stamp Duty across the Country

The power of the State Government to levy stamp duty on the issue of share certificates and transfer of shares has been taken away. Earlier, the rate of stamp duty was not uniform and it varies from state to state but now onwards, all the financial transactions will be chargeable with a uniform rate of stamp duty with effect from 1st July 2020.

For example: In Delhi, the rate of stamp duty on the issue of share certificates (physical or demat) was 0.1% which has now been changed to 0.005% w.e.f. 1st July 2020 and now it is uniform for all states.

Rate of Stamp Duty:

Rate of stamp duty is the most important point while transferring the shares. Earlier the stamp duty rate on transfer of shares was:

But there was amendment in [1]Finance act in 2020, when the rates of Stamp duty have been changed. After amendment w.e.f. 1^st July 2020 the rate of stamp duty on transfer of shares are as follow;

ü  Modes of payment of Stamp Duty:

For instance, for NCT of Delhi, it can be paid through the portal of Stock Holding Corporation of India Limited (SHCIL), for Maharashtra (Mumbai), it can be paid through https://gras.mahakosh.gov.in/echallan/ and for Bangalore, it can be paid through purchasing of stamp paper or by franking at the sub-registrar’s office.

ü  Who is liable to pay duty on the transfer of shares?

Who was responsible for paying stamp duty was unclear under the previous system. In accordance with the terms of the agreement, the stamp duty was paid by either the buyer or the seller. Under the current system, however, stamp duty is now payable regardless of the type of transaction.

ü  When is Stamp Duty required to pay?

Under the provisions of Section 17 of the Stamp Act, stamp duty must be paid or stamps must be attached either before to or at the time that the transfer deed is executed. No company is required to register for a transfer of shares in accordance with the Companies Act unless a valid instrument of transfer has been given to the company. This instrument must be fully stamped and completed by or on behalf of both the transferor and the transferee.

ü  Cost factor for determining stamp duty:

Stamp duty will be based on the market value of securities being issued or transferred. Market Value is the consideration in any transaction and is determined as follows:

ü  Stamp Duty on Transfer of shares through Demat:

Before the provisions of Part 1 of Chapter IV of the Finance Act were made public, there was no stamp duty that applied to the transfer of securities that were carried out in dematerialized form.

A provision in the Finance Act that allows for the imposition and collection of stamp duty on the transfer of securities in demat or electronic form has been included in an effort to put a stop to the relaxations that have been granted to such transfers.

This modification is intended to put an end to the most significant benefit that may be obtained from the dematerialization of any security.

In case of transfer of shares in Demat, Buyer shall be liable for payment of Stamp Duty.

ü  Pre/ Post Rate of Stamp Duty:

CONCLUSION:

In conclusion, Indian share transfer stamp duty is complex matter. As a vital part of the legal system, buyers and sellers must comply with state-specific rates and laws. Stakeholders should follow stamp duty law updates to navigate the complexity. These policies streamline share transfers and improve India's financial integrity and openness. Market players must comprehend stamp duty before transferring shares to provide a legal and stable financial environment.

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). 

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information. 

IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION