The Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules 2019
This alert is in continuation to our legal alert dated 28 February 2019, wherein we analyzed the provisions of the Indian Stamp Act, 1899 (as proposed to be amended by the Finance Act, 2019) (Amended Stamp Act). The said amendments have now been notified and are set to come into force with effect from 1 April 2020.
Further, this alert highlights the key provisions of the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations, and Depositories) Rules 2019 (Rules) that have been enacted pursuant to the Amended Stamp Act. These Rules have been published in the official gazette on 10 December 2019 and will also come into effect on 1 April 2020.
The Rules have been introduced as a guidance note for the stock exchanges and the depositories for collection of stamp duty, determination of transactions (whether on delivery basis or not), transfer of duty to respective states, filing of returns, etc.
In addition, the Rules also provide clarity on the modalities of payment of stamp duty for transactions involving issue/transfer of shares in demat form.
Highlights of the Rules
Rules regarding stamp duty viz.-à-viz. sale of listed securities made through stock exchanges
(a) Date of collection of stamp duty: the stamp duty in respect of sale of listed securities through stock exchange will be collected on the settlement day. Settlement day refers to the day on which:
- a transaction is settled by a stock exchange/authorized clearing corporation by completing the delivery of funds to the seller and delivery of the respective securities to the buyer; or
- it is reported to a stock exchange/clearing corporation that a transaction, in relation to listed 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.
(b) Stamp duty on consideration:
- Where a transaction in securities is reported to a stock exchange, the stamp-duty will be collected on the entire sale consideration when the transfer is reported, even if the consideration is paid in part or in installments to be paid in future.
- The sale consideration reported to a stock exchange shall be considered as the actual sale value.
(c) Stamp duty on option instruments: in case of option instruments, including instruments with zero or near zero premium, the buyer of the option contract is required to clearly identify the premium payable by him on each constituent transaction and report it to the stock exchange or the collecting agent.
(d) Stamp duty on tender offer, open offer, private placements, etc.: where a transaction arises from tender offer, open offer or offer for sale or private placements through stock exchange, the stamp-duty will be collected from the offer or on the market value of the security being acquired or sold out, at the offer price, once the offer is successfully completed.
Rules regarding stamp duty viz.-a-viz. transfer of securities in the depository system
(a) Date of collection of stamp duty: the stamp duty in respect of transfer of securities in the depository system will be collected before the execution of all off-market transfers.
(b) Stamp duty on consideration:
- The stamp duty will be collected on the consideration amount specified by the transferor in the delivery instruction slip. The consideration reported to the depository will be considered as the actual consideration amount.
- In the event that the consideration with respect to a transfer is paid in part or in installments, the stamp duty will be collected by the depository on the entire sale consideration when the transfer is effected.
(c) Stamp duty on pledge of securities: the stamp duty will be collected from a pledgee on the market value of securities, at the time of transfer of securities pursuant to invocation of pledge.
> Rules regarding stamp duty viz.-à-viz. creation of a new security and change in records in the depository upon the issue of securities:
(a) Date of collection of stamp duty: the stamp duty in respect of creation of new security and change in records in the depository upon issue of securities will be collected from the issuer prior to executing any transaction in the depository system.
(b) Allotment list: the issuer is required to submit the allotment list to the depository, in respect of issue of securities by it and the purchases made after an open offer or tender offer or offer for sale (as the case may be), at the time of allotment of securities.
(c) No stamp duty on creation or destruction of securities: stamp duty in respect of creation or destruction of securities on account of corporate actions such as stock split, stock consolidation, mergers and acquisitions, or such similar actions, etc., will not be collected by the depository to the extent that it does not involve a change in beneficial ownership.
However, a fresh issue to an investor as part of a corporate action will be subject to stamp-duty.
(d) Stamp duty on tender offer, open offer, private placements, etc.: in case of transactions arising from tender offer or open offer or offer for sale or private placement conducted through a depository, stamp-duty shall be collected from the offer or, on the market value of the security being acquired or sold out, at the offer price, once the offer is successfully completed.
(e) Stamp duty on acquisition of shares of minority shareholders: where the acquisition of shares of minority shareholders by majority shareholders under Section 236 of the Companies Act, 2013 is implemented by way of a corporate action, the stamp-duty on such transfers will be collected by the depository from the issuer, instead of the transferor.
> Rules regarding correction of erroneous entries
Where a transfer has been erroneously reported as not involving a sale consideration, the same may be rectified by informing the relevant stock exchange or the depository within three weeks from the end of the month and upon the payment of stamp duty.
The Rules have brought about clarity with respect to modalities and obligations in relation to payment of stamp duty, and the responsibility of the stock exchanges and depositories for collection of duty, while effecting the enlisted transactions.
Additionally, the Rules also provide for the duty of the collecting agents, that is, the stock exchanges and the depositories to transfer the duty collected to the relevant state governments (basis the domicile of the transacting parties) and submit monthly returns in respect of the duty so collected.