stamp duty on securities levy, rates and validity i. · #405, 7th cross, iv block, koramangala,...
TRANSCRIPT
# 405, 7th Cross, IV Block, Koramangala, Bangalore – 560 034
☏: 080-25534374 / 25536618
www.sharadasc.com
Pag
e1
Stamp Duty on securities – Levy, Rates and Validity
I. Introduction
The Parliament vide the Finance Act, 2019 amended the India Stamp Act, 1899 (Act) to bring in various
changes as well as additions to Sec. 2 of the Act i.e. definitions provision w.e.f 1st
July, 2020. Furthermore,
changes were made to the rates of stamp duty with respect to issue & transfer of securities for both listed and
unlisted (dematerialized and non–dematerialized). This Article intends to inform the reader about the
authority for levy of stamp duty, various changes with respect to the rates of stamp duties and validity of those
changes.
II. Power of Levy
1. Who has the power to levy stamp duty?
The power of any Government, Department, agency or any other body
to levy any tax or duty is always derived from the Indian Constitution.
Any taxes or duty levied devoid of the power shall be deemed illegal.
Article 268 of the Constitution bestows power on the Union Govt. as
well as the State Governments to levy Stamp duties.
Article 268:
Duties levied by the Union but collected and appropriated by the States- (1) Such stamp duties as are mentioned in the Union List shall be levied by the Government of India but shall be collected— (a) in the case where such duties are leviable within any 2[Union territory], by the Government of India, and (b) in other cases, by the States within which such duties are respectively leviable. (2) The proceeds in any financial year of any such duty leviable within any State shall not form part of the
Consolidated Fund of India, but shall be assigned to that State.
It is clear from the above extract of the Article that the Government of India i.e. the Union Govt. shall have the
power to levy stamp duties. While it is levied by the Union Govt., in case of Union Territory, the Govt. of India
shall be responsible to collect such duties and in case of states, the State Govt. shall be responsible to collect
such duties.
2. What are the transactions on which the Union Govt. has power to levy stamp duty?
The Union List under the Seventh Schedule lists down the various subject matters on which the Parliament can
make laws and the Govt. of India shall be responsible to implement those laws. Entry 91 of the said list reads
as follows:
# 405, 7th Cross, IV Block, Koramangala, Bangalore – 560 034
☏: 080-25534374 / 25536618
www.sharadasc.com
Pag
e2
Rates of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of
credit, policies of insurance, transfer of shares, debentures, proxies and receipts.
On reading Entry 91 it is clear that Parliament has power to prescribe rates of stamp duties only with respect
to the above instruments and no other instrument.
3. What are the transactions on which the State Govt. has power to levy stamp duty?
The State List lists down the subject matters on which the State Assemblies may make laws on. Entry 63 of the
said list reads as follows:
Rates of stamp duty in respect of documents other than those specified in the provisions of List I with regard
to rates of stamp duty.
Hence, it can be inferred from above that only the State Assemblies have power to enact laws with respect to
the rates and levy of stamp duties on instruments other than those mentioned in the Union List.
III. Rates of Stamp Duty
The Parliament with an intention to bring in uniformity in rates of stamp
duties with respect to securities all over the country and give a boost to
the securities market, has amended Schedule I of the Indian Stamp Act,
1899.
Article 27 was substituted with the following:
"27. DEBENTURE— [as defined by section 2 (10A)] (see sections 9A and 9B)
(a) in case of issue of debenture; 0.005%
(b) in case of transfer and re-issue of debenture
0.0001%
It is interesting to note that with the addition of the definition of the term Debenture and Securities, stamp
duties would be levied on all debentures whether listed or unlisted. Earlier only marketable debentures i.e.
those that were listed would attract stamp duty.
Article 56A has been inserted to include the following:
"56A. SECURITY OTHER THAN DEBENTURES (see sections 9A and 9B)—
a. Issue of security other than debenture 0.005%
b. Transfer of security other than debenture on delivery basis 0.015%
# 405, 7th Cross, IV Block, Koramangala, Bangalore – 560 034
☏: 080-25534374 / 25536618
www.sharadasc.com
Pag
e3
c. Transfer of security other than debenture on non-delivery basis 0.003%
d. Derivatives:
(i) Futures (equity and commodity)
(ii) Options (equity and commodity)
(iii) Currency and interest rate derivatives
(iv) Other derivatives
0.002%
0.003%
0.0001%
0.002%
e. Government securities 0%
f. Repo on corporate bonds 0.00001%
It may be noted that the aforementioned new rates of stamp duty have been brought into effect from 1st
July,
2020. All transactions that are taking place on stock exchanges are being subjected to the new rates.
IV. Validity of levy
Although the change in rates of stamp duties has brought in uniformity and has
reduced the cost of transactions, as a professional one would surely question
the validity of the uniform levy of stamp duty all over the country with respect
to the issue of shares which has always been within the purview of State
Governments.
On reading Article 268 of the Constitution as well as the Union and State Lists of
the Seventh Schedule, one may infer the Union Govt. has the power only with
respect to levy of duty on transfer of shares while the power to levy stamp duty
with respect to issue of shares vests with the State Governments.
V. Conclusion
While it may be beneficial for the parties to a transaction to seek refuge under the new reduced rates of
stamp duty for issue of shares, it would be wise to follow the old rates prescribed under the state laws till
such time the State Assemblies amend their respective stamp duty laws.
CS Ratnamala Hegde, Principal Associate Date: 14th
September, 2020
Sreenivasan Narasimhan, Associate