Indian Stamp Act, 1899 (Download PDF)

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Indian Stamp Act, 1899

  • The Finance Act, 2019 and rules made thereunder made some amendments in Indian Stamp Act, 1899.
  • The Central government after consultation with states has created the legal and institutional mechanism to enable states to collect stamp duty on securities market instruments at one place by one agency.
  • It will facilitate ease of doing business and bring uniformity of the stamp duty on securities across states and thereby build a pan-India securities market.

Overview

  • A mechanism has been developed for sharing the stamp duty with relevant state governments which is based on the state of domicile of the buyer.
  • The current system of collection of stamp duty on securities market transactions led to multiple rates for the same instrument.
  • This resulted in jurisdictional disputes and multiple incidences of duty which raised the transaction costs in the securities market and hurting capital formation.
  • The rationalized and harmonized system through centralized collection mechanism is expected to ensure minimum cost of collection and enhanced revenue productivity.
  • The system will help to develop equity markets and equity culture across the length and breadth of the country, ushering in balanced regional development.

The amendments are following-

  • The stamp duty on sale, transfer and issue of securities shall be collected on behalf of state governments by the collecting agents. The collected stamp duty will then be transferred in the account of concerned state government.
  • No stamp duty will be collected by the states on any secondary record of transactions associated with a transaction on which the depository/stock exchange has been authorized to collect the stamp duty. This will prevent multiple incidences of taxation.
  • In the extant scenario, stamp duty was payable by both seller and buyer. But in new system, it is levied only on one side.
  • The collecting agents shall be the stock exchanges or authorized Clearing Corporations and the Depositories.
  • For all exchange based secondary market transactions in securities, stamp duty shall be collected by stock exchanges.
  • For off-market transactions and initial issue of securities happening in demat form, Depositories shall collect the stamp duty.
  • The Central government has also notified the Clearing Corporation of India Limited (CCIL) under RBI jurisdiction and the Registrars to an issue and/or Share Transfer Agents (RTI/STAs) to act as collecting agent.
  • 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.
  • When the buyer is located out of India, to the state government having the registered office of the trading member or broker of such buyer, when 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 RBI or the concerned state government.
  • The collecting agent may deduct 0.2 % of stamp duty collected on behalf of state government towards facilitation charges before transferring the same to such state government.
  • For many segments, there is reduction in duty.
  • For equity cash segment trading and options, as rates are to be charged only on one side in line with the new scheme, it can be stated that there is an overall reduction in tax burden.
  • Secondary market transfer of instruments that 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 existing rates.
  • Stamp duty shall not be charged in respect of the instruments of transaction in stock exchanges and depositories established in any international Financial Services Centre setup under Section 18 of the Special Economic Zones Act, 2005.
  • Tax arbitrage is avoided by providing the same rate of stamp duty for issue or re-issue or sale or transfer of securities happening outside stock exchanges and depositories.
  • Mutual Funds being delivery-based transactions in securities, were supposed to have been paying the duty as per various state acts.

- Published/Last Modified on: January 21, 2021

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