Stamp Duty on Transfer of Shares

Updated: 31-01-2023 06:51:59 AM

Stamp Duty on Transfer of Shares is the tax which is levied by the government on transfer or exchange of financial securities. It is levied by the Central Government in accordance with The Indian Stamp Act, 1899. According to the Companies Act, 2013, stamp duty is to be paid for any transaction that involves a transfer deed whether for the exchange/transfer of shares, the change in ownership of property, etc.

Shares are defined as a movable property with regards to the Articles of Association mentioned in the company by-laws. All shares issued by a public limited company are transferable freely as per law. The transfer will be done with a stamp transfer deed which signifies the true ownership of the shares along with a share certificate provided to the person in possession of the respective financial security.

The Reason for Levying Stamp Duty on Share Transfer/Exchange

Stamp Duty is a source of revenue for the Central Government or State Government. Additionally, Stamp Duty also makes the respective documents legitimate and legally admissible in a court of law. Thus, Stamp Duty is responsible for making the documentation process more transparent, legitimate and reliable as per The Indian Stamp Act, 1899.

The Instruments on which it is levied

Stamp duty is levied on various financial instruments of both capital and revenue instruments such as

1. Debentures
2. Promissory notes
3. Bills of exchange
4. Transfer of shares and the forms associated with them.
5. Letters of credit
6. Bill of Lading
7. Proxies

Calculating Stamp Duty

There are three categories that need to be examined before calculating Stamp Duty as per the Indian Stamp Act, 1899:

• The Stamp Duty levied on the transaction or the goods/ property involved in the transfer deed remains fixed. For example-article of clerkship and copy of extracts among some.
• The Stamp Duty charges which are mentioned in the respective documents will be dependent on the value of the transaction concerned. For example- security bonds and mortgage deed etc.
• The tax to be incurred under Stamp duty will be either on the value of the transaction mentioned in the document or the current market value.

The average price of the value of the instrument needs to be taken into consideration applicable on the date of the instrument.

Article	Duty
A transfer which takes place with or without consideration	The stamp duty is applicable at 25 paise for every Rs 100 or part thereof of the value of the share
Shares of any incorporated company or any other corporate entity	The stamp duty is applicable at 25 paise for every Rs 100 or part thereof of the value of the share
For any trust or property which takes place without consideration between one trustee to another OR between a trustee and a beneficiary.	The stamp duty is subject to Rs 5 or smaller amount as per applicable rules

Concessional Stamp Duty

It must be noted that Concessional stamp duty is payable in the following cases:

• When a trustee transfers their respective security to a beneficiary.
• When a trustee transfers their respective  security to another trustee.
• When a bank transfers the shares owned by them to their name.

How does Stamp Duty need to be paid?

Stamp duty is payable in the form of demand draft for certain high value transactions such as sale of property, alternately, they may be payable online via NEFT/RTGS in some other cases. Currently relatively few cases are available where stamp duty is payable in cash as this is allowed in case of relatively small value transactions.     

Who bears the Stamp Duty payment burden?

The person executing the document will bear the expenses as per Section 29 of The Indian Stamp Act, 1899. Under this section of the Indian Stamp Act, any instrument chargeable with duty will be stamped before the instrument is duly signed.

In case the transfer is in accordance with the transfer of shares of a company then the seller will be responsible for bearing the expenses on Stamp Duty.

When is Stamp Duty payable?

Under section 17 of the Act, Stamp Duty needs to be paid, or else applicable stamps need to be affixed beforehand i.e. before the transfer of shares or property actually occurs. If due to some reason, stamp duty payment has not been completed prior to the transaction then it is recommended to pay at the time the transfer deed is executed with or without applicable penalties.

Cancellation of Stamps

The Stamp Act (Section-12) states that the person who uses adhesive stamps in the process needs to cancel them, once affixed. The cancellation of stamps is necessary to ensure that the same stamps are not used again. Also, the cancellation needs to be done at the time of either execution or affixation of the respective instrument.

There is no specific mode of cancellation. However, it is a general practice to cancel the stamps by

• Writing one’s initials on the stamps
• Writing the executor’s name on the stamp

In a scenario, where the above hasn’t been done on cancelled stamps then the respective instrument will be deemed unstamped under existing rules.

Stamp Duty on Electronic Transfer of Shares

The Indian Stamp Act, 1899 had to be amended once depositories and electronic transfer/trading of shares came into existence. Section 8A was inserted in order to implement stamp duty on electronic share transfer. It provides that securities which are issued electronically need not be stamped in physical form (as shares are now dematerialised) and  consolidated stamp duty is payable on the total securities amount by the issuer. It also states that the transfer of ownership (registered transfer) of shares from a person to a depository or from depository to a beneficiary is not liable to incur Stamp Duty separately. Additionally, under Article-62 (Schedule-1) of The Indian Stamp Act, 1899 the transfer of the beneficiary ownership which is done by a depository is not liable to be charged Stamp duty on transfer of shares.