Editorial 888
Stamp Duty on Gift of Shares
(04th March 2024)
“Gifting shares: a present that grows in value.”
SHORT SUMMARY:
The act of gifting shares is a thoughtful and
strategic financial gesture that can have lasting implications for both the
giver and the recipient. However, one aspect that often goes overlooked is the
potential impact of stamp duty on such transactions. In this article, we'll
delve into the nuances of stamp duty on the gift of shares, shedding light on
what individuals need to consider when navigating this financial terrain.
What is Stamp Duty?
Stamp duty is a tax imposed by governments on
various types of transactions, and its application can vary depending on the
jurisdiction. When it comes to the gift of shares, stamp duty may play a role,
and it is crucial for both parties involved to be aware of its implications.
Whether Universal Stamp Duty?
Whether the application of stamp duty on the gift of
shares is universal is a matter of debate. The answer to this question can be
found in the amendment provided below:
The Finance Act, 2019, had introduced certain
amendments in the Indian Stamp Act, 1899, to streamline the levy and collection
of stamp duty on securities transactions. The Ministry of Finance notified the
Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing
Corporations and Depositories) Rules, 2019, on 10 December 2019, to regulate
the centralised mechanism for the collection of stamp duty across the country.
These amendments have come into force with effect from 1 July 2020.
Universal Rate of Stamp Duty on Transfer of Shares:
w.e.f.
1st July 2020 the rate of stamp duty on transfer of shares is
universal throughout the country. The rate of stamp duty on Transfer of shares
is 0.015% of Market Value of the shares.
Therefore, one thing is clear the rate of stamp duty
on transfer of shares/ gift of shares are universal throughout the country.
IDENTIFICATION
OF STAMP DUTY ON GIFT OF SHARES:
a)
Procedure for
transfer of shares by way of Gift
i.
Preparation of Gift
Deed for transfer of Equity share or Preference Shares;
ii.
Delivery of Gift Deed
along with share certificate by Donor in favour of Donee
iii.
Gift Deed along with
share certificate should be accepted by or on behalf of Donee;
iv.
Execution of SH-4
v.
Delivery of duly dated
and execute transfer documents by gift, by Donor or Donee to the Company within
60 days from the date of its execution;
vi.
The company should call
the Board meeting, which is required to be convened within a period of 1 month
from the receipt of transfer documents by way of Gift;
vii.
Convene the meeting and
pass the Board Resolution for transfer of shares by way of Gift;
viii.
Company will endorse
name of transferee back side of the Share Certificates.
ix.
The company should
deliver the share certificate within one month from the receipt by the Company
of the transfer documents by gift.
b)
Stamp Duty:
As per Indian Stamp Act, the stamp duty shall be
calculated on the basis of market value of securities which
are subject to issuance or transfer, as the case may be.
c)
Market Value:
The definition of market value provides as follows: In relation to an
instrument through which–
(i)
Any security is traded
in a stock exchange, means the price at which it is so traded;
(ii)
Any security that is
transferred through a depository but not traded in stock exchange, means the
price or the consideration mentioned in such instrument;
(iii)
Any security dealt
otherwise than in the stock exchange or depository, means the price or
consideration mentioned in such instrument.
(iv)
Any securities sale
through physical mode, means consideration mentioned in transfer deed.
d)
Note:
As per above mentioned provisions, Stamp duty shall be paid on the market value
of shares. However, there is no amount involved in Gift of shares. How to
calculate stamp duty on the same:
In
the absence of a specific provision for market value in case of transfers
without consideration, it seems that such transactions would not be subject to
stamp duty in the absence of any other instrument of transfer.
The
Government of India has issued frequently asked questions (FAQs) 7 for the
implementation of amendments in the Act and the Rules made thereunder.
Questions15 and 24 of the FAQs clarify that no stamp duty is payable in
relation to transactions without consideration, i.e., gift, bonus shares,
transmission of securities.
Therefore, one can opine that stamp duty
is to be collected on market value based on price or the consideration
involved. Accordingly, since consideration involved in case of gift is “NIL”,
no stamp duty will be levied in such transaction.
CONCLUSION:
A thoughtful and prudent financial move could be to
give shares as a gift, but you must consider the stamp duty consequences. Key
components in successfully navigating this area of financial planning include
familiarity with local rules, consideration of the parties' relationships, and
appropriate share valuation. To make sure the gift of shares is both
financially prudent and a considerate gesture, it's a good idea to consult
evaluate the stamp duty.
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.
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LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM,
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