https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Vinod Kothari Consultantshttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngVinod Kothari Consultants2019-12-31 12:03:122021-09-27 16:38:40Faqs on recent amendments in Indian Stamp Act, 1899
Dear Sir, received your inputs but have a few follow up questions. Since – (a) benefit of section 4 (3) is not extended to issue of securities otherwise than through a Stock Exchange or Depository; (b) FAQ31 specifically clarifies that “stamp duty will also be additionally applicable on other associated instruments such as share certificates etc. if provided for in the relevant Act governing stamp duty collection of the concerned State”; and (c) certain State Stamp Acts still prescribe different stamp duty on share certificates (such as INR 1 for every INR1000 or part thereof), I think, we would have to pay stamp duty as per respective State Stamp law as well as 0.005% as per Schedule I of Indian Stamp Act on physical issuance of securities. Since FAQ specifically refers to ‘Share certificates’, it seems to compel us to pay additional stamp duty as per respective State stamp law as well. Please confirm. Also, on the manner of payment of stamp duty for physical issuance of securities, just to reconfirm, you agree that we should follow the methods prevalent in respective States and not approach the RTA for payment of duty, correct?
In December 2021, the MoF issued 2 additional FAQs w.r.t the amendment to Indian Stamp Act which are FAQ 31 and FAQ 32. Going by these 2 FAQs by MOF, I understand that
• Based on FAQ 31, in case of physical issuance of shares under Sec 9B, apart from payment of stamp duty @ 0.005% as prescribed under Art 56A of the Indian Stamp Act, we are obligated to pay an additional stamp duty as per respective state stamp laws. It means that in case of issuer company based in Maharashtra, apart from 0.005%, that company will have to pay an additional duty of 0.1% prescribed in Art 16 of Maharashtra Stamp Act on share certificate. Is my understanding correct here?
• Based on FAQ 32, the company is required to pay stamp duty (both 0.005% and 0.1% as above query) only through the methods prescribed under respective State Stamp Acts.
The MoF had earlier notified RTA to be a ‘depository’ for the limited purposes of acting as a ‘collecting agent’ of stamp duty for physical shares under Sec 9B vide notification dated January 8, 2020. However, this notification was not forming part of actual amendments which got notified on July 1, 2020. Given this and in view of FAQ 32, the company is obligated to follow the methods of collection of duty prescribed in the concerned State and the RTAs cannot be approached for payment of duty on physical share issuance/transfers under Sec 9B of Indian Stamp Act. Pls confirm this understanding.
Due to specific reference to section 9A under section 4(3), the benefit of section 4 (3) will not be available in case of issue of securities otherwise than through SE or depository i.e. securities issued in physical form. The duty payable on the principal instrument in case of issue of securities in physical form, will be payable as per the rates specified in Schedule I in terms of provisions of Section 9B. Except in case of demat securities, stamp duty is levied on an instrument and not on the transaction. Accordingly, share certificate being the principal instrument will be stamped as per the rates specified in Schedule I. Any other associated instrument like share subscription agreement or share purchase agreement (in case of transfers) will be required to be stamped as per the rates specified in respective State laws. Manner of payment in both cases will be as per the respective State laws.
Dear Sir, received your inputs but have a few follow up questions. Since – (a) benefit of section 4 (3) is not extended to issue of securities otherwise than through a Stock Exchange or Depository; (b) FAQ31 specifically clarifies that “stamp duty will also be additionally applicable on other associated instruments such as share certificates etc. if provided for in the relevant Act governing stamp duty collection of the concerned State”; and (c) certain State Stamp Acts still prescribe different stamp duty on share certificates (such as INR 1 for every INR1000 or part thereof), I think, we would have to pay stamp duty as per respective State Stamp law as well as 0.005% as per Schedule I of Indian Stamp Act on physical issuance of securities. Since FAQ specifically refers to ‘Share certificates’, it seems to compel us to pay additional stamp duty as per respective State stamp law as well. Please confirm. Also, on the manner of payment of stamp duty for physical issuance of securities, just to reconfirm, you agree that we should follow the methods prevalent in respective States and not approach the RTA for payment of duty, correct?
Sir,
Awaiting your response on my queries. Please share views
Sunil Sharma says:
Dear Sirs,
Transfer in an unlisted Company is covered as yourrightly pointed out, however the view is different for “issue of shares” by a Pvt. Ltd. Company. Pvt. Ltd. Company, when issues shares / new shares, can not be said to be attraced by the amendment. Request for your views on this aspect.
I believe the amendment in ISA is only with respect to Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019, mainly for listed securities and therefore, will not be applicable to a share transfer happening in a private company registered in the State of Maharashtra. I understand that, share transfer rate as per Article 62 of ISA applicable to Maharashtra State still remains @0.25%
Referring to Q.11 of the FAQs, the stamp duty provisions do not distinguish on the basis of companies being listed or unlisted. Stamp duty is levied on execution of instrument pursuant to which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. Accordingly, the amendments are applicable on unlisted companies as well. Hence, it will also be applicable to a share transfer happening in a private company.
But the amendment seems to be specifically for listed securities and further the Article 62 (transfer of shares) of the Indian Stamp Act as applicable to Maharashtra State does not seem to have got amended. Therefore, not sure whether the reduced rate will be still applicable to any private company transactions.
Dear Sir, received your inputs but have a few follow up questions. Since – (a) benefit of section 4 (3) is not extended to issue of securities otherwise than through a Stock Exchange or Depository; (b) FAQ31 specifically clarifies that “stamp duty will also be additionally applicable on other associated instruments such as share certificates etc. if provided for in the relevant Act governing stamp duty collection of the concerned State”; and (c) certain State Stamp Acts still prescribe different stamp duty on share certificates (such as INR 1 for every INR1000 or part thereof), I think, we would have to pay stamp duty as per respective State Stamp law as well as 0.005% as per Schedule I of Indian Stamp Act on physical issuance of securities. Since FAQ specifically refers to ‘Share certificates’, it seems to compel us to pay additional stamp duty as per respective State stamp law as well. Please confirm. Also, on the manner of payment of stamp duty for physical issuance of securities, just to reconfirm, you agree that we should follow the methods prevalent in respective States and not approach the RTA for payment of duty, correct?
In December 2021, the MoF issued 2 additional FAQs w.r.t the amendment to Indian Stamp Act which are FAQ 31 and FAQ 32. Going by these 2 FAQs by MOF, I understand that
• Based on FAQ 31, in case of physical issuance of shares under Sec 9B, apart from payment of stamp duty @ 0.005% as prescribed under Art 56A of the Indian Stamp Act, we are obligated to pay an additional stamp duty as per respective state stamp laws. It means that in case of issuer company based in Maharashtra, apart from 0.005%, that company will have to pay an additional duty of 0.1% prescribed in Art 16 of Maharashtra Stamp Act on share certificate. Is my understanding correct here?
• Based on FAQ 32, the company is required to pay stamp duty (both 0.005% and 0.1% as above query) only through the methods prescribed under respective State Stamp Acts.
The MoF had earlier notified RTA to be a ‘depository’ for the limited purposes of acting as a ‘collecting agent’ of stamp duty for physical shares under Sec 9B vide notification dated January 8, 2020. However, this notification was not forming part of actual amendments which got notified on July 1, 2020. Given this and in view of FAQ 32, the company is obligated to follow the methods of collection of duty prescribed in the concerned State and the RTAs cannot be approached for payment of duty on physical share issuance/transfers under Sec 9B of Indian Stamp Act. Pls confirm this understanding.
Dear Sir,
Due to specific reference to section 9A under section 4(3), the benefit of section 4 (3) will not be available in case of issue of securities otherwise than through SE or depository i.e. securities issued in physical form. The duty payable on the principal instrument in case of issue of securities in physical form, will be payable as per the rates specified in Schedule I in terms of provisions of Section 9B. Except in case of demat securities, stamp duty is levied on an instrument and not on the transaction. Accordingly, share certificate being the principal instrument will be stamped as per the rates specified in Schedule I. Any other associated instrument like share subscription agreement or share purchase agreement (in case of transfers) will be required to be stamped as per the rates specified in respective State laws. Manner of payment in both cases will be as per the respective State laws.
Dear Sir, received your inputs but have a few follow up questions. Since – (a) benefit of section 4 (3) is not extended to issue of securities otherwise than through a Stock Exchange or Depository; (b) FAQ31 specifically clarifies that “stamp duty will also be additionally applicable on other associated instruments such as share certificates etc. if provided for in the relevant Act governing stamp duty collection of the concerned State”; and (c) certain State Stamp Acts still prescribe different stamp duty on share certificates (such as INR 1 for every INR1000 or part thereof), I think, we would have to pay stamp duty as per respective State Stamp law as well as 0.005% as per Schedule I of Indian Stamp Act on physical issuance of securities. Since FAQ specifically refers to ‘Share certificates’, it seems to compel us to pay additional stamp duty as per respective State stamp law as well. Please confirm. Also, on the manner of payment of stamp duty for physical issuance of securities, just to reconfirm, you agree that we should follow the methods prevalent in respective States and not approach the RTA for payment of duty, correct?
Dear sir
Writing this to follow up on my follow up queries on those recent 2 FAQs by MoF.
Sir,
Awaiting your response on my queries. Please share views
Dear Sirs,
Transfer in an unlisted Company is covered as yourrightly pointed out, however the view is different for “issue of shares” by a Pvt. Ltd. Company. Pvt. Ltd. Company, when issues shares / new shares, can not be said to be attraced by the amendment. Request for your views on this aspect.
I believe the amendment in ISA is only with respect to Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019, mainly for listed securities and therefore, will not be applicable to a share transfer happening in a private company registered in the State of Maharashtra. I understand that, share transfer rate as per Article 62 of ISA applicable to Maharashtra State still remains @0.25%
Referring to Q.11 of the FAQs, the stamp duty provisions do not distinguish on the basis of companies being listed or unlisted. Stamp duty is levied on execution of instrument pursuant to which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. Accordingly, the amendments are applicable on unlisted companies as well. Hence, it will also be applicable to a share transfer happening in a private company.
But the amendment seems to be specifically for listed securities and further the Article 62 (transfer of shares) of the Indian Stamp Act as applicable to Maharashtra State does not seem to have got amended. Therefore, not sure whether the reduced rate will be still applicable to any private company transactions.
Dear Sir,
We hold the same view as mentioned earlier.