Part I of Chapter V of the Finance Bill (‘Bill’) provides amendments to Indian Stamp Act, 1899. Clauses 11 to 21 of the Bill seek to amend the Indian Stamp Act, 1899 for levy and administration of stamp duty on securities market instruments by the States at one place through one agency, viz., through Stock Exchanges or its Clearing Corporation or Depositories on one instrument, and for appropriately sharing the same with respective State Governments based on State of domicile of the ultimate buying client.
Changes in definition clauses
Clause 11 of the Bill seeks to substitute some of the definitions and seeks to insert some new definitions in the Act. The substituted definitions and new definitions are as below-
- Section 2(1) is substituted for section 2(1) and 2(1A).
- Section 2(1) defines the expression ‘allotment list’ as a list containing details of allotment of the securities intimated by the issuer to the depository under sub-section (2) of section 8 of the Depositories Act, 1996;
- Section 2(1A) defines the term ‘banker’ as including a bank and any person acting as a banker.
- Section 2(5) is amended.The amended Section 2(5) defines the term ‘bond’ as including-
- any instrument whereby a person obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;
- any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and
- any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another
` but does not include a ‘debenture’.
- Section 2(7A) is inserted.Section 2(7A) defines the expression ‘clearance list’ as a list of transactions of sale and purchase relating to contracts traded on the stock exchanges submitted to a clearing corporation in accordance with the law for the time being in force in this behalf;
- Section 2(7B) is inserted by this Bill.Section 2(7B) defines the expression ‘clearing corporation’ as an entity established to undertake the activity of clearing and settlement of transactions in securities or other instruments and includes a clearing house of a recognized stock exchange;
- Section 2(10A) is inserted by this Bill.Section 2(10A) defines the term ‘debenture’ as including-
- debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on theassets of the company or not;
- bonds in the nature of debenture issued by any incorporated company or body corporate;
- certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the Reserve Bank of India may specify from time to time;
- securitized debt instruments; and
- any other debt instruments specified by the Securities and Exchange Board of India from time to time.
- Section 2(10B) is inserted by the Bill.Section 2(10B) defines the term ‘depository’ as including-
- a depository as defined in section 2(1)(e) of the Depositories Act, 1996; and
- any other entity declared by the Central Government, by notification in the Official Gazette, to be a depository for the purposes of this Act.
- Section 2(11) is amended by this Bill.The amended section 2(11) defines the term ‘executed’ and ‘execution’ with reference to instruments as ‘signed’ and ‘signature’ and includes attribution of electronic record within the meaning of section 11 of the Information Technology Act, 2000.
- Section 2(14) is substituted by a new section.The newly substituted section 2(14) defines the term ‘instrument’ as including-
- every document, by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded;
- a document, electronic or otherwise, created for a transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded; and
- any other document mention in Schedule I,
but does not include such instruments as may be specified by the Government, by notification in the Official Gazette.
- Section 2(15A) is inserted by the Bill.Section 2(15A) defines the term ‘issuer’ as any person making an issue of securities.
- Section 2(16A) has been substituted by Section 2(16A) and 2(16B).
- Section 2(16A) defines the expression ‘marketable security’ as security capable of being traded in any stock exchange in India.
- Section 2(16B) defines the expression ‘market value’ in relation to an instrument through which-
- any security is traded in a stock exchange, means theprice at which it is so traded;
- any security which is transferred through a depository but not traded in the stock exchange means the price or the consideration mentioned in such instrument;
- any security is dealt otherwise than in the stock exchange or depository, means the price or consideration mentioned in such instrument.
- Section 2(23A) has been inserted by the bill.Section 2(23A) defines the term ‘securities’ as including-
- Securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956;
- A ‘derivate’ as defined in section 45U(a) of the Reserve Bank of India, 1934;
- a certificate of deposit, commercial usance bill, commercial paper, repo on corporate bonds and such other debt instrument of original or initial maturity up to one year as the Reserve Bank of India may specify from time to time; and
- any other instrument declared by the Central Government, by notification in the Official Gazette, to be securities for the purposes of this Act.
- Section 2(27) has been inserted by the Bill. Section 2(27) defines the expression ‘stock exchange’ as including-
- a recognized stock exchange as defined in Section 2(f) of the Securities Contracts (Regulation) Act, 1956; and
- such other platform for trading or reporting a deal in securities, as may be specified by the Central Government, by notification in the Official Gazette, for the purposes of this Act.
Several instruments used in single transaction of sale, mortgage or settlement
Clause 13 of the Bill seeks to insert sub-section (3) to section 4 which deals on the above subject. The newly inserted sub-section (3) provides that notwithstanding anything contained in sub-sections (1) and (2), 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 for the purpose of this section and no stamp duty shall be charged on any other instruments relating to such transaction.
Securities dealt in depository not liable to stamp duty (Section 8A)
The Bill substitutes a new section for the existing section 8A. The newly substituted section provides that notwithstanding anything contained in this Act or any other law for the time being in force-
- an issuer, by the issue of securities to one or more depositories, shall, in respect of such issue, be chargeable with duty on the total amount of securities issued by it and such securities need not be stamped;
- the transfer of registered ownership of securities from a person to a depository or from a depository to a beneficial owner shall not be liable to duty.
The Explanation to this section provides that the expression ‘beneficial ownership’ shall have the same meaning as assigned to it in section 2(1)(a) of the Depositories Act, 1996.
New Part
Clause 15 of the Bill inserted a new Part AA - Of the liability of instruments of transaction in stock exchanges and depositories to duty, which contains two sections-
- Section 9A – Instruments chargeable with duty for transactions in stock exchanges and depositories.
- Section 9B – Instruments chargeable with duty for transactions otherwise than through stock exchange and depositories.
Section 9A provides that-
1. Notwithstanding anything contained in this act-
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when the sale of any securities, whether delivery based or otherwise, is made through a stock exchange, the stamp-duty on each such sale in the clearance list shall be collected on behalf of the State Government by the stock exchange or a clearing corporation authorized by it, from its buyer on the market value of such securities at the time of settlement of transactions in securities of such buyer, in such manner as the Central Government may, by rules, provide;
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when any transfer of securities for a consideration, whether delivery based or otherwise, is made by a depository otherwise than on the basis of any transaction referred to above, the stamp-duty on such transfer shall be collected on behalf of the State Government by the depository from the transferor of such securities on the consideration amount specified therein, in such manner as the Central Government may, by rules, provide;
- when pursuant to issue of securities, any creation or change in the records of a depository is made, the stamp-duty on the allotment list shall be collected on behalf of the State Government by the depository from the issuer of securities on the total market value of the securities as contained in such list and in such manner as the Central Government may, by rules, provide.
2. Notwithstanding anything contained in this Act, the instruments referred to in sub-section (1) shall be chargeable with duty as provided therein at the rate specified in Schedule I and such instruments need not be stamped.
3. From the date of commencement of this Part, no stamp-duty shall be charged or collected by the State Government on any note or memorandum or any other document, electronic or otherwise, associated with the transactions mentioned in sub-section (1).
4. The stock exchange or a clearing corporation authorized by it or the depository, as the case may be, shall, within three weeks of the end of each month and in accordance with the rules made in this behalf by the Central Government, in consultation with the State Government, transfer the stamp-duty collected under this section to the State Government where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant.Before such transfer, the stock exchange or the clearing corporation authorized by it or the depository shall be entitled to deduct such percentage of stamp-duty towards facilitation charges as may be specified in such rules.
Explanation.––The term “participant” shall have the same meaning as assigned to it in clause (g)of section 2 of the Depositories Act, 1996.
a. Every stock exchange or the clearing corporation authorized by it and depository shall submit to the Government details of the transactions referred to in sub-section (1) in such manner as the Central Government may, by rules, provide.
Section 9(B) provides that notwithstanding anything contained in this Act-
- when any issue of securities is made by an issuer otherwise than through a stock exchange or depository, the stamp-duty on each such issue shall be payable by the issuer, at the place where its registered office is located, on the total market value of the securities so issued at the rate specified in Schedule I;
- when any sale or transfer or reissue of securities for consideration is made otherwise than through a stock exchange or depository, the stamp-duty on each such sale or transfer or reissue shall be payable by the seller or transferor or issuer, as the case may be, on the consideration amount specified in such instrument at the rate specified in Schedule I.
Stock and marketable securities how to be valued (Section 21)
Clause 16 of the Bill substituted some words for new words and inserted a proviso to section 21. The amended section 21 provides that where an instrument is chargeable with ad valorem duty in respect of any stock or of any marketable or other security, such duty shall be calculated on the market value of such stock or security. The proviso to this section provides that the market value for calculating the stamp-duty shall be, in the case of––
- options in any securities, the premium paid by the buyer;
- repo on corporate bonds, interest paid by the borrower; and
- swap, only the first leg of the cash flow.
Duties by whom payable (Section 29)
Clause 17 of the Bill omitted some figures/words and inserted some sub clauses. The amended section 29 provides that in the absence of an agreement to the contrary, the expense of providing the proper stamp shall be borne –
(a) in the case of any instrument described in any of the following Articles of Schedule I, namely-
- No. 2. (Administration Bond),
- No. 6 (Agreement relating to Deposit of Title-deeds, Pawn or Pledge),
- No. 13 (Bill of exchange),
- No. 15 (Bond),
- No. 16 (Bottomry Bond),
- No. 26 (Customs Bond),
- No. 32 (Further charge),
- No. 34 (Indemnity-Bond),
- No. 40 (Mortgage-deed),
- No. 49 (Promissory-note),
- No. 55 (Release),
- No. 56 (Respondentia Bond),
- No. 57 (Security-bond or Mortgage-deed),
- No. 58 (Settlement),
- No. 62 (c). (Transfer of any interest secured by a bond, mortgage-deed or policy of insurance), by the person drawing, making or executing such instrument.
(b) in the case of a policy of insurance other than fire-insurance-by the person effecting the insurance;
(bb) in the case of a policy of fire-insurance- by the person issuing the policy;
(c) in the case of a conveyance (including are-conveyance of mortgaged property:) by the grantee: in the case of a lease or agreement to lease-by the lessee or intended lessee;
(d) in the case of a counterpart of a lease-by the less or
(e) in the case of an instrument of exchange including swap-by the parties in equal shares;
(f) in the case of a certificate of sale-by the purchaser of the property to which such certificate relates;
(g) in the case of an instrument of partition-by the parties thereto in proportion to their respective shares in the whole property partitioned, or, when the partition is made in execution of an order passed by a Revenue-authority or Civil Court or arbitrator, in such proportion as such authority, Court or arbitrator directs.
(h) in the case of sale of security through stock exchange, by the buyer of such security;
(i) in the case of sale of security otherwise than through a stock exchange, by the seller of such security;
(j) in the case of transfer of security through a depository, by the transferor of such security;
(k) in the case of transfer of security otherwise than through a stock exchange or depository, by the transferor of such security;
(l) in the case of issue of security, whether through a stock exchange or a depository or otherwise, by the issuer of such security; and
(m) in the case of any other instrument not specified herein, by the person making, drawing or executing such instrument.
Penalty for failure to comply with provisions of section 9A
Clause 18 inserted a new section 62A which provides that-
- being required under sub-section (5) of section 9A to submit details of transactions to the Government, fails to submit the same; or
- submits a document or makes a declaration which is false or which such person knows or believes to be false,
shall be punishable with fine of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.
Power of Central Government to make rules
Clause 19 inserted a new section 73A which gives powers to the Central to make Rules for all or any of the following matters-
(a) the manner of collection of stamp-duty on behalf of the State Government by the stock exchange or the clearing corporation authorized by it, from its buyer under clause (a) of sub-section (1) of section 9A;
(b) the manner of collection of stamp-duty on behalf of the State Government by the depository from the transferor under clause (b) of sub-section (1) of section 9A;
(c) the manner of collection of stamp-duty on behalf of the State Government by the depository from the issuer under clause (c) of sub-section (1) of section 9A;
(d) the manner of transfer of stamp-duty to the State Government under sub-section (4) of section 9A;
(e) any other matter which has to be, or may be, provided by rules.
Amendment to Schedule I
Clause 21 of the bill brings amendments to the articles-
- 19 – Certificate or other document;
- 36 – Letter of allotment of shares; and
- 62 – transfer of shares; and
- inserts a new article 56A – Securities other than debentures.
