STAMP DUTY ON SECURITIES TRANSACTION
The Government of India has recently amended the Indian Stamp Act 1899 (Act)
to include stamp duty on (a) Issue; (b) Sale; and (c) Transfer of
securities regardless of the whether such transactions are
delivery-based or otherwise, or whether they take place through a stock
exchange and depository or otherwise. This amendment to the Act have
been brought into force from 1 July 2020.The Government has also
notified necessary Rules
which lay down rules regarding collection of stamp duty by the
collection centre or the depository. This update analyses the said
amendment and the Rules thereunder.
Amendment to section 8A of the Act: Section 8A of the Act has been amended by the Finance Act 2019 (Finance Act 2019).
Earlier, the Act exempted the transfer of securities in dematerialised
form from the liability of stamp duty under Section 8A of the Act.
However, as per the amendment brought in by the Finance Act 2019,Section
8A now only exempts the following transfers:
- Transfer of registered ownership of securities from a person to a depository i.e., conversion of physical or materialized securities to dematerialized securities;
- Transfer from a depository to a beneficial owner i.e., conversion of dematerialized securities to physical or materialized securities.
Insertion of sections 9A and 9B to the Act: The Finance
Act2019has inserted two new sections to the Act i.e., sections 9A and
9B. Sections 9A and 9B now impose liability of stamp duty on the issue,
sale and transfer of securities. As per the said sections the transfer
of securities will attract stamp duty regardless of whether such
transactions are delivery based or otherwise, or whether they take place
through a stock exchange and depository or otherwise.
Amendment to section 29 of the Act: Section 29 of the Act has
been amended by the Finance Act2019 which deals with the responsibility
of the relevant party to bear the payment of stamp duty. As per the
amendment to the said section read with the Rules, the issue of
securities on the stock exchange will attract stamp duty that shall be
payable by the buyer and, if securities are issued otherwise, duty shall
be paid by the seller. In case of a transfer of securities, the
transferor shall be responsible for the payment of stamp duty regardless
of the fact that the transfer is through a stock exchange, depository
or otherwise.
Insertion of section 62A to the Act: Insertion of section 62A of
the Act has introduced a new penalty provision to ensure that collection
and transfer of stamp duty is done in a timely manner. It provides
that, if any person required to collect the stamp duty, fails to collect
the stamp duty or fails to transfer the stamp duty so collected within
15 days of the expiry of the time specified, theyshall be punishable
with a fine which shall not be less than INR 1,00,000, but which may
extend up to 1% of the collection or transfer so defaulted.
Intention behind amending the Act: Earlier, the stamp duty varied
in different states; which allowed the parties to execute the
instrument in the state with a lower rate of stamp duty to avoid a
higher transaction cost. The parties preferred to execute instrument in
the state with lower stamp duty which led to rate shopping and loss of
revenue for the Government. The Amendments and the Rules have been
brought into force to curb rate shopping. Earlier, the same instrument
was also subject to multiple rates in different states which caused
ambiguity for parties and would lead to higher duty being paid to err on
the side of caution which overall increased the overall burden on
parties. The Amendments and Rules also give clarity with regards to the
person who is liable to pay the stamp duty. The Rules ensure that there
is a proper mechanism and system in place to collect uniform stamp duty
across India.
MHCO COMMENT:
The amendments and Rules will bring a significant impact on the
securities transactions. Although, the cost of securities transaction
has been increased by virtue of the amendments, the mechanism put in
place by the Government will level the field for all investors dealing
in securities. The amendment will also impact investments in mutual
funds as they will be subject to double taxation- one being taxed when
person invests in mutual funds and second when the funds are deployed by
AMC for purchasing securities from the market. The amendments will help
to generate higher revenue by charging stamp duty on securities
instruments but will increase the burden on the investors. The amount of
duty although minimal, will add to the overall burdensome transaction
cost / levies which are already very high in India compared to other
emerging markets and may act as an irritant for foreign investors
looking to invest through the Mutual Fund route.
No comments:
Post a Comment