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

Before the recent amendment, there was a patchwork of different stamp duty rates applied to transactions involving securities across various states in India. This led to confusion, jurisdictional disputes, and multiple instances of duty imposition, creating inefficiencies in the securities market. However, with the amendment, a Rationalized Collection Mechanism of Stamp Duty has been introduced, aiming to streamline the process and bring uniformity to stamp duty rates across the country concerning securities market instruments.

The relevant Stamp Rules, 2019, were officially announced on December 10, 2019. Subsequently, the revised Act came into effect from July 1, 2020. As per the updated regulations, the Clearing Corporation of India Ltd (CCIL) has been designated as the collecting agent for transactions involving foreign exchange, interest rate, and credit derivatives that are reported to it.

Indian Stamp Act, 1899

To better comprehend these recent amendments, let’s delve into some common questions and their corresponding answers:

1. What were the issues with the previous stamp duty regime? The previous system featured a multitude of stamp duty rates applied by different states on transactions involving securities, leading to confusion and disputes regarding jurisdiction. This resulted in multiple instances of stamp duty imposition, causing inefficiencies and complexities in the securities market.
2. What is the objective of the recent amendment? The recent amendment aims to introduce a Rationalized Collection Mechanism of Stamp Duty, seeking to standardize stamp duty rates across India concerning securities market instruments. By doing so, it aims to streamline the stamp duty collection process, enhance transparency, and mitigate jurisdictional disputes.
3. When were the relevant Stamp Rules notified, and when did the revised Act come into effect? The Stamp Rules, 2019, pertinent to these amendments, were officially notified on December 10, 2019. Subsequently, the revised Act came into effect from July 1, 2020, marking the commencement of the new stamp duty regime.
4. What role does the Clearing Corporation of India Ltd (CCIL) play in the revised Act? Under the revised Act, CCIL has been designated as the collecting agent for transactions involving foreign exchange, interest rate, and credit derivatives that are reported to it. This appointment aims to centralize the collection of stamp duty for specified transactions, promoting efficiency and consistency.
5. How does the amendment impact stakeholders in the securities market? The amendment brings about significant changes for stakeholders in the securities market, including investors, brokers, and clearing corporations. It introduces clarity and uniformity in stamp duty rates, thereby reducing compliance burdens and facilitating smoother transactions across state boundaries.
6. What are the potential benefits of the Rationalized Collection Mechanism of Stamp Duty? By streamlining the stamp duty collection process and standardizing rates, the Rationalized Collection Mechanism aims to enhance the ease of doing business in the securities market, improve market liquidity, and bolster investor confidence. Additionally, it aims to reduce the scope for disputes and inconsistencies, thereby fostering a more conducive regulatory environment.

In summary, the recent amendments to the stamp duty regime in India seek to address the complexities and inefficiencies prevalent in the securities market by introducing a Rationalized Collection Mechanism. Through standardization of stamp duty rates and centralization of collection mechanisms, the amendments aim to promote transparency, efficiency, and investor confidence in the securities market landscape.

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

Indian Stamp Act

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.

Indian Stamp Act

  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

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.

Why the Indian Stamp Act Was Introduced?

The Indian Stamp Act was introduced with the primary objective of regulating the collection of stamp duty on various instruments to generate revenue for the government. This Act serves as a fiscal legislation aimed at imposing taxes on specified documents or transactions, commonly referred to as “instruments,” to facilitate their legal recognition and enforceability.

Historically, stamp duty has been a significant source of revenue for governments worldwide, including India. The Indian Stamp Act was enacted to standardize and streamline the collection of stamp duty across the country, ensuring uniformity in taxation practices regarding legal documents and financial transactions.

Additionally, the Act serves broader purposes beyond revenue generation. It helps deter fraud and forgery by requiring the stamping of legal documents, thereby providing a clear indication of their authenticity and legality. Stamp duty also serves as a means of documenting and formalizing agreements, contracts, and transactions, thereby enhancing legal certainty and facilitating dispute resolution.

Moreover, the Indian Stamp Act aims to promote economic activities by regulating transactions such as property transfers, lease agreements, loan documents, and business contracts. By imposing stamp duty on these transactions, the government can control and monitor various economic activities while also contributing to the overall fiscal health of the nation.

In summary, the Indian Stamp Act was introduced to serve multiple purposes, including revenue generation, fraud prevention, legal recognition of documents, and regulation of economic activities. It plays a crucial role in India’s fiscal framework and legal system by ensuring the authenticity, legality, and enforceability of various instruments and transactions.

Greetings! I’m Annu Sharma, a Company Secretary by profession and a passionate writer. My expertise lies in conducting research, reading, and vetting, and ensuring businesses are compliance-ready. You may have come across my insights on platforms like Tax Guru and Compliance Calendar LLP. If you’re curious to learn more about me and my work, feel free to Google “CS Annu Sharma” and explore further. I’m here to support businesses in navigating the intricate realm of compliance with clarity and confidence.