In recent years, the Government has facilitated ease of doing business in India, and amongst the flurry of measures aimed at projecting a globally ‘open for business’ image have been the amendments introduced to the Indian Stamp Act, 1899 (“Act“), through the Finance Act, 2019 (“Finance Act“). Crucially, the amendments have made sweeping changes to the way stamp duty is collected in relation to the securities market. In addition to amending the Act, the Finance Act also notified the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 (“Rules“). It had earlier been sought to bring in the provisions of the amended Act, as well as the Rules into force on January 09, 2020 but the same was extended to April 01, 2020. However, after requests from stakeholders on the same, it was finally decided that the amendments would be implemented from July 01, 2020 onwards1.
The rationale behind implementing the changes, as set forth by the Ministry of Finance, is that the present system of collection of stamp duty on securities market transaction, including the issuance, sale and transfer of securities market instruments, was found inefficient due to the fact of multiple rates for the same instrument increasing the number of jurisdictional disputes as well as multiple incidences of duty2. With that aim in mind, the amendments have been brought about to tackle the aforesaid issues by replacing the erstwhile system with a new regime centred on standardisation of the currently multifarious stamp duty regimes based on jurisdiction. Some of the key amendments have been discussed below:
As per article 27 of Schedule I of the unamended Act, only debentures which qualified as “marketable securities” were subject to stamp duty. Marketable securities are those securities which are capable of being traded in any stock exchange in India3. As a result, a common interpretation that was taken was that equivalent stamp duty is not payable on the issue of unlisted debentures. However, the Finance Act has now introduced a new definition of ‘debentures’4 in a manner wherein it can now be clearly inferred that the stamp duty shall be collected not only on marketable securities but on all instances of issuance and transfer of debentures.
Importantly, under the old system, Article 27 of Schedule I had carved out an exemption for debentures issued by any company or other corporate body in terms of a registered mortgage deed (duly stamped in accordance with the applicable state stamp duty legislation). The amendment has done away with such exemption thus implying that secured debentures would now be subject to additional stamp duty.
Another fundamental amendment has been the removal of the exemption from stamp duty provided to the transfer of debentures in dematerialised form. This is a significant development as it has been the norm to gravitate towards transfer of debentures in dematerialised form so as to receive the benefit of the exemption.
The purpose of the amendments manifests itself most prominently in the addition to the Section 4 of the unamended Act, wherein a new sub-section, Section 4(3) has been inserted which states that “in the case of any issue, sale or transfer of securities, the instrument on which stamp-duty is chargeable under Section 9A shall be the principal instrument and no stamp-duty shall be charged on any other instruments relating to the transaction”5. As has been further elucidated on in the FAQs released along with the amendments, the focus remains to ensure that double incidence of stamp duty does not occur on any transaction6.
The newly inserted Section 9A lays out the chargeable instrument and the manner in which the stamp duty on the same will be collected. It stipulates that “on the sale of any securities through a stock exchange, the stamp duty on each such sale shall be collected on behalf of the State Government by the stock exchange or the clearing corporation authorised by it, from the buyer of such securities at the time of settlement of transaction of securities…”7. The Section similarly provides for a transfer of securities for consideration made by a depository otherwise than on a transaction as referred above, in which case the stamp-duty is to be collected by the depository. The Rules detail the mechanism that will be followed for the collection of stamp duty, and the method in which the same will be transferred from the collecting agents (whether the stock exchanges, or the clearing corporations, as the case may be) to the respective State Governments.
The revised stamp duty rates as effective from July 01, 2020 are as follows:
|Issue of Debentures||0.005%|
|Transfer and re-issue of debentures||0.0001%|
|Issue of security other than debenture||0.005%|
|Transfer of security other than debenture on delivery basis||0.015%|
|Transfer of security other than debenture on non-delivery basis||0.003%|
|(i) Futures (Equity and Commodity)||0.002%|
|(ii) Options (Equity and Commodity)||0.003%|
|(iii) Currency and Interest Rate Derivatives||0.0001%|
|(iv) Other Derivatives||0.002%|
|Repo on Corporate Bonds||0.00001%|
One of the cardinal changes in the rate of stamp duty is the rate on issuance of debentures which has been amended to an ad valorem stamp duty of 0.005% as opposed to the earlier regime wherein the stamp duty was chargeable at 0.05% but was subject to a cap.
It is early days to comment on whether the substantial changes brought about in the stamp duty regime will achieve its three pronged target of (i) facilitating ease of doing business; (ii) bringing in uniformity and affordability of the stamp duty across states and; and (iii) enhancing revenue productivity. Irrespective of the goals being realised, the amendments are sure to bring about elemental changes to the way transactions are structured, with renegotiation of instruments and particular scrutiny of the provisions relating to payment of stamp duty.
3 Section 12(h), Finance Act, 2019, which can be accessed at http://egazette.nic.in/WriteReadData/2019/198304.pdf
4 Section 12(d), Finance Act 2019, which can be accessed at http://egazette.nic.in/WriteReadData/2019/198304.pdf
5 Section 13, ibid
7 Section 15, ibid