The Indian Stamp (Collection of Stamp Duty) Rules 2019, brought by the Finance Ministry

Soumya Bajpai

21 Aug, 2020

On 10^th December 2019, the Ministry of Finance has brought out the notification regarding the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules. The stamp-duty is for sales of any securities made through the stock exchange.  It includes the sale of listed units of any registered pooled arrangement or scheme or any tripartite repo and must be collected on the settlement day by a clearing corporation or stock exchange authorized by it, at the rates mentioned in the Indian Stamp Act from the concerned persons.

The nature of the particular transfer of securities is to be treated as on delivery basis or on non-delivery basis and shall be determined by the clearing corporation at the time of settlement. The stamp-duty must be collected before the execution of off-market from transferor and transfers of securities in the depository system, that included the counter trades occurring in dematerialized or electronic form.

Collection of stamp duty by clearing corporation or stock exchange

• The Stamp duty for sale of securities by the stock exchange which includes any listed units of a registered pooled scheme/arrangement, or tripartite repo are to be collected on the date of settlement by clearing corporation or by stock exchange authorized by the stock exchange from the buyer.
• The Stamp duty has to be collected from the offeror for transactions arising from the open offer, tender offer or offer for sale through stock exchange, once the offer is completed successfully.
• Buyers of option instruments which include zero premium instruments are required to clearly identify the premium payable to him on each constituent transaction and report sent to the collecting agent.
• If a transaction is reported to the stock exchange, the stamp duty is required to be payable on the whole sale consideration when the transfer was reported. It is applicable even when the consideration is paid in parts or in installments to be paid in the future.
• If a depository informs a stock exchange of dematerialized transfers to the clearing corporation/stock exchange, which have to be reported later, and stamp duty, has been collected by the depository, the stock exchange will not collect stamp duty.
• Sale consideration which is reported to the stock exchange must be considered as the real actual sale value.
• The clearing house or a stock exchange must inform the depository about a transfer of dematerialized securities executed on the day when settlement obligation was determined by the clearing corporation, upon which stamp duty is leviable.
• For the transactions which are merely reported to the stock exchange, the stamp duty has to be collected by stock exchange. The reporting intermediaries must report the domicile details of a client to the stock exchange.

Determination of transactions as on non delivery basis or on delivery basis

• The clearing corporation must at the time of settlement has to determine whether transfer of security is to be treated as on non delivery basis or on delivery basis, according to the established principles of governing delivery.
• In case of inter-operability of clearing corporations, trades of a client across the stock exchanges must be considered to determine whether it results in the delivery or not.

Collection of stamp duty by the depositories in case of the issuance

• The stamp duty levied upon creation of latest security and alteration in records within the depository on issue of securities must be collected from the issuer before executing any of the transaction within depository system.
• The issuer of securities will be submitted to the depository, the allotment list in lieu of initial public offer, any further issue of securities or any private placement and purchase made after a tender offer or offer for sale or open offer at the time of allotment of securities.
• A depository shall not collect stamp-duty on destruction or creation of securities on account of stock consolidation or stock split or mergers and acquisitions or any similar actions etc., when there are no changes in the beneficial ownership.
• For transactions resulting from offer for sale or open offer or tender offer by depository, stamp duty has to be collected upon the market value of security from the offeror in the offer price.
• For the acquisition of shares of minority by majority shareholders according to section 236 of the Companies Act, stamp duty will be collected from the issuer and not from the transferor.

Collection of the stamp duty from transferor for off market transfers

• The Stamp duty must be collected before the execution of off-market transfers.  It involves transfer of securities in depository and includes the counter trades occurring in electronic form or demat
• A depository system must collect stamp duty on the consideration amount which is mentioned by the transferor in the delivery instruction slip. It will be considered as the original consideration amount
• In case of inter-depository off-market transfers, transferee’s depository has to informs the transferor’s depository about the transferee’s domicile state as to remit stamp duty as collected by the state government
• A depository requires putting in place a system for the identification of market transfers. It is mandatory to disclose the reasons of transfer and the sale consideration for that transfers, and the consideration amount
• If the consideration is paid in parts, then the stamp duty must be collected on the entire sale consideration when the sale is effected
• In respect of transfer pursuant to the invocation of pledge, stamp duty must be collected from the pledgee in the market value of the securities

Other respective provision

• The collecting agent must transfer the stamp duty to the State Government according to the Stamp Act
• The collecting agent has to transfer the stamp duty in the account of Government of State with (RBI) Reserve Bank of India or any commercial banks as notified by RBI or the State Government
• The value of stamp duty collected has to be rounded off to the nearest rupee domination
• The collecting agent can deduct 0.2% of the stamp-duty collected as the facilitation charges before transferring it to the State Government
• The collecting agent has to appoint a principal officer within 15 days from the notification issued under the Indian Stamp Act or within 15 days from the date of publication of the Rules 
• The State Government can appoint a nodal officer for all official communication with the principal officers regarding the collection of stamp duty under these Rules
• Stamp duty collected must not be used for any other purposes and must be transferred to the State Government with the interest earned on that particular amount
• The agent who collects must submit a return of stamp duty collected on various transactions, either electronically or manually to the State Government. It also includes the details of defaulters on a monthly basis within 7 days of the succeeding month
• The agent who collects has to submit a consolidated return of stamp duty collected during a financial year, electronically or manually before 30th June to the State Government or to the Accountant General of State. That return must be verified by the designated director or by managing director or principal officer of the collecting agent
• If the person changes his domicile State, the transfer of stamp duty will be transferred to that new State accordingly to the changed address from the date, when records gets updated
• If the transfer is erroneously indicated and not involve any consideration, then it can be rectified by the person who makes such erroneous indication by informing the agent within 3 weeks from end of the month and pay the specified stamp duty
• If the transfer of stamp duty was made erroneously to the State Government or order of the court for reversal of stamp duty which is already paid and transferred, the collecting agent must rectify the same by adjusting it from the next remittance till the erroneous payments are compensated and informed to the concerned state Government about the error in writing. If the State Government is not satisfied by such adjustment, it can proceed against the collecting agent accordance with the provisions of the Stamp Act
• Any fresh or revised demand of the Stamp Duty by the Government of State in relation to any dispute or adjudication can be recovered in as per the provision of the Stamp Act

Conclusion

The Finance Act 2019 amended the Indian Stamp Act for regulating the liability of instruments of transaction in the stock exchanges and depositories to duty.  Section 9A was introduced which provides for the charging the instruments with duty for the transactions in the stock exchange and depositories. The amendment also inserted a new section 73A in the Indian Stamp Act which gives the powers to the central government to make rules in this regard.