Amendments In The Indian Stamp Act, 1899 And Rules Made From July 1, 2020 With Respect To Securities Market Instruments
The Amendments in the Indian Stamp Act, 1899 (“the Stamp Act”) and the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019, brought by the Finance Act 2019 and Rules made thereunder came into effect from 1st July, 2020 vide notifications dated 30th March, 2020.
The present system of collection of stamp duty on securities market transactions resulted in various stamp rates for the same instrument, leading to multiple occurrences of stamp duty and disputes regarding jurisdiction increasing transaction costs. Thus, this move of the Central Government has introduced uniformity in the collection of stamp duty on securities market instruments by enabling states to to collect stamp duty on securities market instruments at one place by one agency (through Stock Exchange or Clearing Corporation authorized by it or by the Depository) on one instrument, thereby facilitating the ease of doing business across States and minimising cost of collection.
A mechanism for appropriate sharing the stamp duty with relevant State Government based on State of domicile of the buying client has also been included. In the extant scenario, stamp duty was payable by both seller and buyer whereas in the new system it is levied only on one side (payable either by the buyer or by the seller but not by both, except in case of certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion).
Salient Features
The stamp-duty on sale, transfer and issue of securities shall be collected on behalf of the State Government by the authorised collecting agents who then shall transfer the collected stamp-duty in the account of the concerned State Government with the Reserve Bank of India or any scheduled commercial bank. The Central Government has also notified the Clearing Corporation of India Limited and the Registrars to Issue and / or Share Transfer Agents to act as collecting agents.
The collecting agents shall within three weeks of the end of each month transfer the stamp-duty collected to the State Government where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant.
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.
The collecting agent may deduct 0.2 per cent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.
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 a consideration as disclosed by trading parties) and initial issue of securities happening in demat form, Depositories shall collect the stamp duty.
The stamp duty rate is lower for issue and transfer of debentures to aid capital formation and to promote corporate bond market.
Secondary market transfer of instruments which are traded with differences in a few basis points, like interest rate / currency derivatives or corporate bonds are being charged at a very lower rate from the existing rates. For the newly introduced ‘repo on corporate bonds’, a very low rate of 0.00001% is specified.
With respect to the applicability of stamp duty on redemption of mutual fund units, it is clarified that redemption is not liable to duty as it is neither a transfer nor an issue nor a sale. However, switching in mutual fund would attract stamp duty even though there is no physical consideration paid or transfer of ownership.
In order to prevent double incidence of stamp duty, when securities are transferred from the demat accounts of issuer to clearing corporation, member, etc., the stamp duty shall be transferred to the State Government where the residence of the buyer is located.