The Stamping Conundrum

The law governing the payment of stamp duty in India are the Indian Stamp Act, 1899 and the respective state stamp acts. Both the Centre and the State have the constitutional power to provide for stamp duty on documents or instruments. In this post we share the details of stamp duty payable on securities consequent to the amendment to the Finance Act, 2019 which came into effect on July 1, 2020.

Prior to the amendment to the Finance Act, 2019, multiple rates were applicable on one instrument and it also resulted in jurisdictional disputes and multiple incidences of duty. This is because the issuing company may be registered in one state, the subscriber may be residing in another state and hence the above issues persisted.

The primary rationale of the 2019 Amendment was to create a uniform legal and institutional mechanism to enable the states to collect stamp duty on securities market instruments at one place by one agency and on one instrument. The 2019 Amendment inserted Sections 9A and 9B to the Indian Stamp Act, 1899 and corresponding Article 56-A was inserted in the Schedule. The newly inserted Section 9B provides that when a security is issued not through a stock exchange or depository, then the stamp duty shall be payable on the total market value of the securities by the Issuer at the place where the registered office is located. Article 56-A is applicable for any issue of security other than debentures. Vide Article 56-A of the Schedule to the Indian Stamp Act, 1899, the stamp duty payable on issue of a security other than debenture is 0.005%, pan-India.

No state in India has made any amendment to either Section 9A / 9B or Article 56-A of the Schedule. In such an event, as explained above, the rates prescribed and provided for in the Indian Stamp Act will be applicable, unless an amendment is made by the State Government, which in our opinion would defeat the purpose of the 2019 Amendment and would create the same confusion which existed prior to the 2019 Amendment.