Even though the Finance Act was enforced on April 01, 2019, the amendments of the Indian Stamp Act, 1899 came into force on 1st day of July, 2020. The Central Government has the authority to enforce the amendments as they deem appropriate and the recent enforcement of amendment in Part I of Chapter IV of the Finance Act, vide the notification dated December 10, 2019, was supposed to come in effect from January 09, 2020. However, the notification dated January 08, 2020, the enforcement date was shelved to April 01, 2020, the first day of the new Financial Year. Subsequently, the Ministry of Finance vide the notification dated March 30, 2020, due to the nationwide lockdown on account of COVID-19 situation, declared that the effective date for the enforcement of provisions in Indian Stamp Act, 1899 shall be July 01, 2020.
The recent amendments witnessed the insertion of Section 9A and Section 9B which relates to the instruments ‘Chargeable with duty for transaction in the stock exchange and depositories’ and ‘Chargeable with duty for transactions otherwise than in stock exchange and depositories’ respectively.
As per the Indian Stamp Act, 1899, stamp duty is required to be paid on the instrument and not on the transaction. The Stamp duty is chargeable when ownership or interest is created or transferred under Section 3 of the act and is a State Law. Therefore, the value of stamp duty varies from state to state. However, stamp duty can be imposed by both Central and State Government, but being a state subject, the right to collect the duty solely vests with the State Government. Prior to the amendment, Section 8A of the act exempted the transfer of securities in dematerialized form from the liability of Indian Stamp Act. However, section 9A and section 9B amends section 8A and now, the only exemption under the provision is when the individual converts its physical securities into a dematerialized form or when the individual wishes to rematerialize its shares from Demat form. In other words, the transfer of registered ownership of securities from person to depository or vice versa.
It is pertinent to note that with the enforcement of the section 9A and section 9B of the Indian Stamp Act, the stamp duty is leviable on the issue, sale and transfer of securities irrespective of the fact that the transaction happens through any of the prescribed modes i.e. whether through the depository, stock exchange or otherwise. With the amendment being enforced, there are several implications of the provisions which need to be considered. The implementation of the centralized collection mechanism will aid in uniform duty and generate revenue. However, it is also important to note that stamp being a state law, the duty varies from state to state. Hence, till date, it was permitted to execute the instrument in the state which is levying lower stamp duty so that the parties can minimize the transaction cost. With the new provision being come into effect, the ambiguity and uncertainty relating to the different stamp duty in different states are bound to become minimum and lead to capital generation. This new provision will certainly reduce the evasion in duty and shrink the opportunity of arbitraging the cost of trading. Hence, the latest amendment shall witness the impact on commercial transactions and business activities. Whilst, on one hand, the government will gain due to the surge in transaction cost whereas the parties to the transaction will have to bear the equal expense of stamp duty, reducing their burden of the cost.
As per the amended law, it is the duty of the stock exchanges, depositories and clearing corporations (collectively called ‘collecting agencies’) to collect the stamp duty on the issued, sold or transferred securities and transfer it to the State Government. The time-limit to transfer the collected duty by the collecting agencies, within three weeks of the end of each month, is in accordance with the rules prescribed by the Central Government in the Indian Stamp (Collection of stamp duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019. The collecting agencies must transfer the revenue to that State government where the buyer of the security resides and in case the buyer is located outside India, to the broker of such buyer or to the State Government where the registered office of the trading member is situated and there is no registered office, to that State Government having the registered office of the participant.
According to section 29 of the Indian Stamp Act, it is the responsibility of the relevant party to bear the payment of stamp duty applicable, which stands amended with effect from July 01, 2020. Henceforth, the buyer shall be liable to pay the stamp duty in case of the issuance of securities on a stock exchange whereas if the securities are issued otherwise, the seller must discharge the payment of the stamp duty. Furthermore, it is the responsibility of the transferor to bear the stamp duty in case of transfer of securities regardless of the mode of transfer i.e, stock exchange, depository or otherwise.
The State governments should work in tandem with the Central Government as it is the state subject which comes under the purview of List II of the Constitution of India. The present amendment has ceased certain relaxations to create uniformity, to reduce the collection of cost and increase the revenue of the government. The amendment has changed the entire approach of the previous Indian Stamp Act, 1899.
