Indian Stamp Act, 1899 – amendments proposed by Finance Bill, 2019
28 February 2019
The Finance Bill, 2019 (Finance Bill) has proposed certain amendments to the Indian Stamp Act, 1899 (Stamp Act). The amendments shall come into effect on such date that may be notified in the Official Gazette by the central government.
In this update we have given an overview of the key amendments proposed by the Finance Bill.
The Finance Bill seeks to inter alia introduce certain amendments to the Stamp Act that proposes to align the stamp duty regime applicable to financial securities transactions in India.
Key reforms proposed by the Finance Bill
The key reforms proposed to the Stamp Act in the Finance Bill are as follows:
Definitions: the Finance Bill proposes to amend a few definitions in the Stamp Act to align them with the definitions provided under other statutes and introduce a few new definitions to bring parity between the Stamp Act provisions and the amendments proposed under the Finance Bill. For example, the Finance Bill has introduced a definition for the term “securities” which has been defined in accordance with the provisions of clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (SCRA). This clause of the SCRA inter alia defines the term “securities” to include shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate. Further the term “debentures” has been defined to include:
- debenture stock, bonds or any other instrument of a company evidencing a debt whether constituting a charge 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 instrument; and (e) and any other debt instrument specified by SEBI from time to time.
Dispensation of exemption to transfer of securities: marking a shift from the exemption that was accorded under Section 8A(c)(ii) and Section 8A(c)(iii) of the Stamp Act, the Finance Bill proposes to amend the said provision by deleting the waivers and hence inter alia requiring stamping of transfer of beneficial ownership of securities, which are dealt with by a depository.
Stamp Duty collection mechanism and calculation: the Finance Bill proposes to insert Section 9A which provides when stamp duty will be collected by the stock exchange or clearing corporation authorized by it or the depository, as the case may be, on behalf of the state government and will be disbursed to the respective state governments within the prescribed time. Stamp duty is proposed to be calculated in certain cases on the market value of the securities at the time of settlement of the transaction, while in other cases, on the consideration amount specified in the instrument of transfer.
Stamp duty on principal instrument: the Finance Bill has now introduced additional language pursuant to which any issue, sale or transfer of securities, the instrument on which stamp duty is chargeable under the newly introduced Section 9A would be the principal instrument and no stamp duty would be charged on any other instruments relating to any such transaction.
Valuation of stock and marketable security: the ad valorem duty would be calculated on the basis of the market value of such stock or security being: in the case of options in any securities – the premium paid by the buyer; in the case of repo on corporate bonds- interest paid by the borrower; and in the case of swap – only the first leg of the cash flow.
Onus of stamp duty: the Finance Bill has also clarified as to who would bear the stamp duty in the newly introduced provisions.
With the notification of the NDI and DI norms, the framework for foreign investment in India has been largely simplified. Further, the NDI and DI norms clearly distinguish between debt and non-debt instruments and demarcate the authority responsible for each kind of instrument, i.e., the central government or the RBI. This clarity is likely to ease the approval process for investors.
It may also be pointed out that the NDI Rules do not encompass all press notes previously issued. Press note 4 in relation to FDI in coal mining, single brand retail, contract manufacturing and digital media has not been incorporated in the NDI Rules. Clarification on this point is awaited.