The Finance Bill of 2019 intended to streamline the stamp duty regime on financial securities transactions in India by amending the Stamp Act of 1899. These changes were important to facilitate ease of doing business in India.
The Ministry of Finance set the date for these proposed adjustments to take effect as January 9, 2020. Furthermore, the Ministry deferred the effective date of the Act’s modifications until April 1, 2020, via a notification dated January 8, 2020. The Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations, and Depositories) Rules, 2019 have been notified in this regard to regulate the centralised method for stamp duty collection across the country.
The new act has modified a few of the definitions in the earlier act. The definitions are mentioned below:
- Instruments: Documents, electronic or otherwise, prepared for a transaction in a stock exchange or depository by which any right or obligation is, or claims to be, created, transferred, limited, extended, extinguished, or recorded has been included in the definition of the instrument.
- Securities: Certificates of deposit, commercial usance bills, commercial paper, repo on corporate bonds, and any other debt instrument with an original or initial maturity of up to one year have been included in the definition of securities. These are now liable to stamp duty as well, even though they were previously exempt from the Act.
- Debentures: Only debentures that were marketable securities were required to be stamped under the old Act’s Article 27 of Schedule I. The Acts’ new schedule further proposes imposing stamp duty on all forms of debentures, whether listed or unlisted.
- Market Value: The definition of market value has been introduced to mean, concerning an instrument through which (i) any security is traded in a stock exchange, the price at which it is so traded; and (ii)any security which is transferred through a depository but not traded in the stock exchange, the price or the consideration mentioned in such instrument.
Amended Stamp Duties
|Types of Instrument||New Rates|
|Issue of Debenture||0.005%|
|Transfer & reissue of debenture||0.0001%|
|Issue of security other than debentures||0.005%|
|Transfer of Security on Delivery Basis||0.0015%|
|Transfer of Security of Non-Delivery Basis||0.003%|
|Futures(Equity & Commodity)||0.002%|
|Options(Equity & Commodity)||0.003%|
|Currency & Interest Rate Derivatives||0.0001%|
|Repo on Corporate Bonds||0.00001%|
Changes in Onus of Stamp Duty Payments
According to section 29 of the Indian Stamp Act, 1899, the following amendments have been made regarding the onus of Stamp Duty payments :
In the absence of an agreement to the contrary, the expense of providing the proper stamp shall be borne:
- in the case of the sale of security through the stock exchange, by the buyer of such security;
- in the case of sale of security otherwise than through a stock exchange, by the seller of such security;
- in the case of transfer of security through a depository, by the transferor of such security;
- in the case of transfer of security otherwise than through a stock exchange or depository, by the transferor of such security;
- in the case of issue of security, whether through a stock exchange or a depository or otherwise, by the issuer of such security; and
- in the case of any other instrument not specified herein, by the person making, drawing or executing such an instrument.
These changes are more progressive, as the person with higher capital will now have to pay more therefore keeping a check on the capitalist tendencies of corporations.
The changes provide for a standardised mechanism for collecting and paying stamp duty on securities issued and transferred. This is designed to curb tax evasion by bringing uniformity and affordability to stamp duty across states. Additionally, collection costs would be reduced significantly, while revenue productivity would be improved. Furthermore, the reforms are expected to do away with the idea of forum shopping, which refers to stamping instruments in states with reduced duty rates.
By Ravi Raj