20 FAQ’s On Recent Amendment in Indian Stamp Act, 1899.

Dear Professionals

Hope You all are doing well !

In this write-up I have simplify the recent amendment in Indian Stamp Act, 1899 by Finance Act, 2019 with effect from July, 1, 2020.

Before this amendment there were diversification of stamp duty rates across all states in India on instrument of transaction in stock exchange and depositories which leads to jurisdictional disputes and multiple incidence of duty whereas after this amendment Rationalized Collection Mechanism of Stamp Duty across India with respect to Securities Market Instruments.

The relevant Stamp Rules, 2019, were notified on December 10, 2019. The revised Act has come into effect from July 1, 2020. Under the revised Act, CCIL (Clearing Corporation of India Ltd) has been appointed as collecting agent for foreign exchange, interest rate and credit derivative transactions which are reported to it.

Let us understand the recent amendments by way of questions and suitable answers for better understanding.

1. The amended provisions of the Stamp Act and Rules made thereunder will come into force from which date?

Answer: Obvious question but still have its own importance, the amended provisions of the Indian Stamp Act, 1899 introduce through Finance Act, 2019 and Rules made thereunder shall come into force i.e. 1st July 2020.

1. Motive behind amendments in the Indian Stamp Act, 1899?

Answer: The amendments, having been related to securities market transactions, brought uniformity among various jurisdictions and avoid excess payment as stamp duty.

Of course, I expect this to develop equity markets and equity culture which hardly touches the tip of ice burg of huge investment markets. Balanced regional development will be an offshoot.

 

1. What all instruments are covered under amended Stamp Act and the Rules made thereunder?

Answer: (Exactly from the website but with slight modification for better understanding)

Each security is charged with a duty as specified in Schedule I of the amended Stamp Act. Securities are defined to include all those instruments specified in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956;

a “derivative” as defined in clause (a) of Section 45U of the Reserve Bank of India Act, 1934;

a certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the Reserve Bank of India may specify from time to time; the repo on corporate bonds;and any other instrument declared by the Central Government, by notification in the Official Gazette, to be securities for the purposes of this Act.

In a nutshell, a derivative, a certificate of deposit, usance bills, commercial paper as used by companies, and repo on corporate bonds.

 

1. What are the key advantages of amendments in the Indian Stamp Act, 1899?

Answer: Benefits can be narrated as under:

The ease of doing business has been improved.

Uniformity and affordability have made my transactions cost-effective and I really do not worry about the financial aspect of this. Less cost of collection and upward growth in productivity are not unexpected developments and easily discernible.

1. What is the basic framework being created through the amendments to the Indian Stamp Act, 1899?

Answer: Now, the states will collect stamp duty on security market instruments in one place and by only one agency. The Stock Exchange or Clearing Corporations authorized by the Stock Exchange or by the Depositories are the chosen ones, for smooth compliance.

 Like, if HDFC Bank who handles my depository account would collect the stamp duty and debit it to my account. A suitable mechanism to share the stamp duty from the state of domicile has also been worked out.

1. Whether stamp duty is applicable on units of Mutual Fund?

Answer: Of course, the provisions of Stamp Act enforce stamp duty on units of Mutual Fund, Hence the same is covered as well.

1. Whether stamp duty is applicable on the bonus issue of shares?

 Answer:  In case of a bonus issue, there is no consideration which means bonus shares are issued free to existing shareholders. Unfortunately, during the last two decades, many well earning companies though accumulated huge reserves, hardly care to issue bonus shares denying its investors of the income from their investments.

1. Who will be responsible to collect the Stamp Duty on behalf of the State Government?

Answer: The Stock Exchange or Clearing Corporation authorized or Depositories (authorized collecting agents).

Further, the Clearing Corporation of India Limited (CCIL) and the Registrars to Issue and / or Share Transfer Agents have also been instructed to act as collecting agents, getting pivotal roles of reliability.

1. What is the manner of collection of stamp duty under the new system?

Answer: For all exchange-based secondary market transactions in securities, Stock Exchanges shall collect the stamp duty;

•and for off-market transactions (which are made for consideration as disclosed by trading parties) and the initial issue of securities happening in demat form, Depositories shall collect the stamp duty.

In short, both stock exchange and depositories would collect stamp duty.

 

  1. What are the stamp duty rates being implemented through the Amended Indian Stamp Act?

Answer: The web gives stamp duty for 11 items of transactions but I would give only a few items and you can refer the original for clarification.

Stamp Duty Rates w.e.f. 1st July 2020

INSTRUMENT	STAMP DUTY
Issue of Debenture	0.005%
Transfer and Re-issue of debenture	0.0001%.
Issue of security other than debenture	0.005%
Derivatives––
(i) Futures (Equity and Commodity)	0.002%
(ii) Options (Equity and Commodity)	0.003%
(iii) Currency and Interest Rate Derivatives	0.0001%
Government Securities	0%
Repo on Corporate Bonds	0.00001%

 

1. What would be the fees for the collecting agent?

Answer: The collecting agent may deduct 0.2 percent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.

For an individual, it may look small but history records a crook who got fraudulent stamp papers issued and a fraud of value of Rs 700 crores was unearthed. India with billions of turnover of security transactions, state governments would earn substantially.

1. When and how will the stamp duty be transferred to each State?

Answer: The collecting agents shall within three weeks of the end of each month and in accordance with the Rules made in this behalf by the Central Government, transfer the stamp-duty collected to the State Government where the residence of the buyer is located.

The collecting agent shall transfer the collected stamp-duty 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.

1. How the State Government will communicate regarding stamp duty matter?

Answer: The State Government shall appoint a nodal officer for all official communications with the principal officers (appointed representatives of collecting agents) for the purposes of collection of stamp-duty in accordance with stamp duty Rules.

Since the collection of huge sums of commission as stamp duty is involved, I only anticipate quick action by the state government concerned.

1. What if collecting agents fails to transfer the duty to the State Government within the time period specified in the Stamp Act and Rules made thereunder?

Answer: The collecting agents would have to transfer the funds within 3 weeks of collection or face a fine of not less than one lakh rupees, but which may extend up to one per cent of the collection or transfer so defaulted.

1. How will the state governments be informed of the stamp duty collected and is there any information system developed for the quicker transmission of information in this regard?

Answer: The collecting agent will have to submit a monthly statement of details of collection including the defaulter’s list within seven days of succeeding month and a yearly statement within the end of 30th June of succeeding year failing which a fine of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less will be levied. The state government is to provide an online facility for unloading the information on time.

1. Who will collect the Stamp duty in case of Mutual Fund and AIF transactions (sale, transfer, and issue of units in Demat mode) through recognized Stock Exchange or Depository?

Answer: As clear from the Act that in case of Mutual Fund and AIF transactions (sale, transfer and issue of units in Demat mode) through recognized Stock Exchange or Depository as defined under SCRA, 1956 and Depositories Act, 1996 respectively, the respective Stock Exchange/authorized Clearing Corporation or a Depository is already empowered to collect stamp duty as per Amended Indian Stamp Act and Rules made thereunder.

1. On transfer of units of Mutual Funds and AIFs held in physical form, stamp duty is to be collected from the transferor. As these transfers happen outside the purview of RTAs what will be the process of collection and remittance of stamp duty?

Answer:  Stamp duty has to be collected and remitted only by collecting agents (RTA for physical units and Depositories for Demat units). Where Mutual Fund and AIF units are issued in physical form, stamp duty has to be collected and remitted by RTA.

1. How stamp duty is calculated in case of issuance of Mutual fund Units?

Answer: Stamp duty is imposed on the value of units excluding other charges like service charge, AMC fee, GST, etc. If the units are issued for Rs 1 crore, stamp duty works out to be Rs 500.

1. Whether stamp duty is applicable on redemption of Mutual Fund units ?

Answer: Redemption is not liable to duty as it is neither a transfer nor an issue nor a sale.

1. What will be the amount of security on transfer of shares in Demat Form?

Answer: Before the notification of provisions of Part 1 of Chapter IV of the Finance Act, transfer of securities in demat was not subject to any stamp duty. The Finance Act, seeks to end the relaxations given to such transfer and has provided for levy and collection of stamp duty on transfer of securities in demat or electronic form. The said amendment seeks to end the biggest benefit available on dematerialization of any security.

Hello-  I am Annu Sharma a Company Secretary by Profession and a Writer by Passion, I do research, reading and vetting, I help businesses to be compliance ready,  Featuring on Tax Guru and  Compliance Calender LLP I To know more about me Just Google CS Annu Sharma