The central government vide a notification extended the date on which amendments made to the Indian Stamp Act, 1899, through the Finance Act, 2019, would come into effect on 1 April 2020.
Laws pertaining to stamp duty form part of the concurrent list of the constitution and, therefore, both the centre as well as the state have powers to make laws pertaining to this subject. The Indian Stamp Act is the central legislation and various states have their own stamp acts that deal with levy of stamp duty within the particular state. However, the amendments to the Indian Stamp Act have reformed the process of levy and collection of stamp duty in respect of instruments of transaction in stock exchanges and depositaries. Some of the changes are:
- Would replace broker turnover stamp duty with stamp duty on the clearance list used for transactions through stock exchange.
- Stamp duties would be collected by the stock exchanges or their authorized clearing corporations and the depositories on behalf of various state governments.
- No more stamp duty waivers on transfer of securities and mutual fund units in dematerialized form.
- Further, the Finance Act has inserted section 9AA to the Indian Stamp Act, which provides for stamp duty liability for instruments of transaction in stock exchanges and depositories. This is applicable for the following instruments:
- sale of any securities (delivery based or otherwise) through a stock exchange;
- transfer of securities for consideration (delivery based or otherwise) made by a depository; and
- pursuant to issue of securities, any creation of charge in the records of the depository, stamp duty would be collected by the stock exchange/depository, as the case may be, in line with the amended provision of the Indian Stamp Act.
Further, the instruments referred to above, are chargeable with duty as specified in the amended schedule I of the Indian Stamp Act. Once the amendments come into force no state government shall charge or collect stamp duty on any note or memorandum or any other document be they electronic or otherwise associated with securities being sold, transferred or issued through common agencies like stock exchanges, clearing houses or depositories. Schedule I of the Indian Stamp Act has also been amended to change applicable duties on transactions related to sale or transfer of securities.
Separately, the central government has also issued the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 (Rules), vide a notification dated 10 December 2019. These lay down necessary rules with respect to the responsibility of collection of stamp duty for instruments of transactions through stock exchanges and depositories by the stock exchanges or their authorized clearing corporation or the depository on behalf of the state government. The aforesaid rules would also come into effect along with amendments to the Indian Stamp Act.
The rules define “common agencies” as collecting agents who have been empowered to collect stamp-duty on “securities” (as defined under the amended Indian Stamp Act) on behalf of the state government in accordance with the provisions of the Indian Stamp Act and rules. Collecting Agents are required to transfer the stamp-duty collected in the account of concerned state government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the Reserve Bank of India or the concerned state government, after deducting 0.2 % of the stamp-duty collected by them. Further, the rules also provide that the stamp-duty collected on behalf of state government shall not be utilized by any collecting agent for any other purpose and shall be transferred to the state government along with interest earned on such amount, if any.
Further, vide notification dated 8 January 2020 the central government has notified that the Clearing Corporation of India, which is a designated trade repository, under the Payment and Settlement Systems Act, 2007, as a “stock exchange” for the limited purposes of acting as a “collecting agent” under the said Indian Stamp Act and rules. Through these amendments, the central government has unified the process of levying of stamp duty on instruments related to issue or transfer of “securities”, by all the states, through common agencies and has also centralized the mechanism for collection of stamp duties by common agencies and its subsequent disbursement to respective state governments.
The business law digest is compiled by Nishith Desai Associates, a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. The firm specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.