THE INDIAN STAMP (COLLECTION OF STAMP DUTY THROUGH STOCK EXCHANGES, CLEARING CORPORATIONS AND DEPOSITORIES) RULES, 2019 – AN OVERVIEW

[Mr. M. GOVINDARAJAN]

Amendments to Stamp Act, 1899

Finance Act, 2019 amended the Indian Stamps Act, 1899.  Section 9A was introduced in the said Finance Act which will come into force from 09.01.2020.   This section provides for charging the instruments with duty for transactions in stock exchanges and depositories.

Section 9A(1)(a) provides that  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.

Section 9A (1)(b) provides that 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 in clause (a), 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.

Section 9A (1) (c) provides that 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, in such manner as the Central Government may, by rules, provide.

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 above transactions.

Rules

The Finance Act, 2019 also inserted a new section 73A in the Indian Stamps Act, 1899 which gives powers to the Central Government to make Rules in this regard.    By virtue of the power conferred under section 73A of the Act the Central Government made ‘the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 (‘Rule’ for short) vide Notification No.GSR 901(E), dated 10.12.2019 which will come into force from 09.01.2020.

Collecting Agent

Rule 2(1)(c) defines the expression ‘collecting agent’ as a stock exchange or a clearing corporation authorized by it or depository which is empowered to collect stamp duty on securities on behalf of the State Government in accordance with the provisions of the Act and the rules.

Settlement day

Rule 2(1)(l) defines the expression ‘settlement day’ as the day on which-

• a transaction is settled by a stock exchange or an authorized clearing corporation, by completing the delivery of funds to the seller and delivery of underlying securities corresponding to those funds to the buyer; or
• it is reported to a stock exchange or a clearing corporation specifying that the transaction in securities has been carried out provided the security is not held in dematerialized form with any of the depositories; or
• an issue or transfer has been effected in a depository in respect of securities held in dematerialized form which may have to be later reported to the stock exchange or a clearing corporation.

Collection of stamp duty by stock exchange or clearing corporation

Rule 3 provides that the stamp duty in respect of sale of any securities made through the stock exchange including sale in respect of any listed units of any recognized pooled arrangements or scheme or tripartite repo, shall be collected on the settlement day by a stock exchange or clearing corporation authorized by it at the rates specified from the concerned person.

• In respect of instruments with zero or near zero premiums, the buyer of the option contract has to clearly identify premium payable by him on each constituent transaction and reported to the collecting agent.
• In respect of transactions arising from tender offer, open offer or offer for sale or private placements executed through stock exchange, the stamp duty shall be collected from the offeror, on the market value of the security being acquired or sold out, at the offer price, once the offer is successfully completed.
• In respect of securities transactions reported to the stock exchange the stamp duty shall be collected on the entire sale consideration when transfer is reported, even if the consideration is paid in part or in installments to be paid in future.   The sale consideration reported to the stock exchange shall be considered as the actual sale value.
• In respect of the transactions merely reported to the stock exchange, the stamp duty shall be collected by the stock exchange.
• The reporting intermediaries shall report domicile details of the clients to the stock exchange.
• In respect of transactions reported by the depositories the stock exchange shall not collect the stamp.
• A stock exchange or a clearing corporation shall intimate the relevant depository about the market transfers executed on its platform on the day on which the settlement obligation is determined by the clearing corporation, on which stamp duty is leviable in the transactions involving securities held in dematerialized form.

Transactions as on delivery basis

The nature of particular transfer of securities through a stock exchange or a clearing corporation whether to be treated as on delivery basis or on non delivery basis shall be determined by the clearing corporation at the time of settlement.   In respect of inter-operability of clearing corporations, the trade of a client across the stock exchange shall be considered  for determining whether  the same would result in a delivery or not.

Collection of stamp duty by depositories

The depositories shall collect stamp duty from transferor as well as from the issuers.

From transferors

• The stamp duty shall be collected before the execution of all off-market transfers of securities in the depository system including the over the counter traders occurring in dematerialized or electronic form.
• A depository shall collect stamp duty on the consideration amount specified by the transferor in the transfer slip.
• In respect of the inter-depository off-market transfers, the transferee’s depository shall intimate the transferor’s depository within one day about the transferee’s domicile State so as to enable the transferor’s depository to remit the stamp duty so collected by the buyer’s State.
• A depository shall put in place a system for-

• identifying market transfers and sale consideration;
• mandatory disclosure of the reasons for transfer of securities in its system and consideration amount, if applicable, whether to be paid in full or part or in installments to be paid in future.

• If the consideration is not paid in full the stamp duty shall be collected by the depository on the entire sale consideration when transfer is effected.
• A depository shall intimate the stock exchange or clearing corporation about the dematerialized transfers, which may have to be reported later to the stock exchange or clearing corporation, on which stamp duty has already been collected by it.
• In respect of transfer of securities pursuant to invocation of pledge, the duty shall be collected from the pledgee on the market value of the securities.

From  issuers

• The stamp duty on creation of new security and change in records in the depository upon issue of securities shall be collected from issuer before executing any transaction in depository system.
• The depository shall not collect stamp duty on creation or destruction of securities on account of corporate actions such as stock split, stock consolidation, merger and acquisitions, or such similar actions if it does not involve a change in beneficial ownership.
• If there is a fresh issue to an investor as part of corporate action, such issue shall be subject to stamp duty.
• In respect of transactions from tender offer or open offer for sale or private placement conducted through a depository being acquired or sole out, at the offer price, once the offer is successfully completed.
• In case of acquisition of shares of minority shareholders by majority shareholders implemented by way of corporate action, the stamp duty on such transfers shall be collected by the depository from the issuer, instead of from the transferor.

Transfer of stamp duty

The collecting agent shall transfer the stamp duty in the account of concerned State Government with the RBI or any scheduled commercial bank as informed to the collecting agent by RBI or the concerned State Government.  The value of the stamp duty shall be rounded off to the nearest rupee.  The collecting agent may deduct 0.2% towards facilitation charges.  The stamp duty collected shall not be utilized for any other purposes by the collecting agent.  The Collecting agent shall appoint a principal officer within 15 days from 09.01.2020.  The State Government shall appoint a nodal officer for all official communications with the principal officers for collection of stamp duty in accordance with these rules.

If a person changes his domicile State, the collecting agent shall transfer the stamp duty to that State Government as per the changed address, from the day the records of collecting agents are updated.

Return of stamp duty

The collecting agent shall submit a return on monthly basis giving all the details contained in the Form prescribed within 7 days of the succeeding month.  The collecting agent also requires submitting a consolidated return on or before 30^th July immediately following that financial year to the concerned State Government and Accountant General of each State.

Erroneous entries

If a transfer is erroneously indicated as not involving sale consideration and if the same is to be rectified he shall inform the collecting agent within 3 weeks from the end of the month and pay the required stamp duty.

Recovery of stamp duty

Any fresh or revised demand of stamp duty payable pursuant to any dispute or adjudication proceedings may be recovered by the State Government in accordance with the provisions of the Act.