Budget proposes Radical Overhaul of Rates (and Payment Mechanism) of Stamp Duty on Issuance and Transfer of 'Securities' in India

All issuance and transfers of ‘securities’ will be subject to stamp duty (i.e. exemption on transfer of dematerialized securities has been removed

Stamp duty will be calculated on an ad valorem basis on: (i) actual trade price for listed securities; or (ii) price identified in instrument of transfer. More importantly, unified stamp duty schedule across India – not linked to or varied with the state of execution.

• This would restrict the forum shopping of jurisdictions with favourable stamp duties

On payment of stamp duty on the issuance / transfer of the security, no additional stamp duty payable on any other document entered in connection with such issuance / transfer.

• Therefore, no separate stamp duty payable on: (a) security subscription / purchase agreements, (b) security certificates, and / or (c) allotment letters.
• This would greatly reduce costs associated with transactions (especially in high stamp duty states, such as Maharashtra) and ease the execution of documents.

Stamp duty on securities to be collected by stock exchanges / clearing exchange / depositories at the time of the transaction and remitted to applicable state governments. For transactions not on the depositories or on the floor of the exchange, stamp duty must be paid by issuer / transferor (as applicable).

The proposed revised rates of stamp duties are as follows:

‘Debenture’ has been defined to include bonds / commercial papers and other like instruments has been included in the ambit of ‘debentures’.

Possible Challenges and the Road Ahead

‘Securities’ has been defined to include ‘securities’ as per the Securities Contracts (Regulation) Act, 1956 (SCRA). Since, SCRA does not apply to private companies, it is not clear whether the above changes would apply to the securities of a private company.

Revised provisions are yet to be notified and are subject to requisite rules being passed by the Central Government in relation to the mechanism of collection of tax by stock exchanges / clearing exchange / depositories and transferring the same to the government.

On implementation, this should not only reduce the stamp duty implications in transactions (especially in high stamp duty states), but also simplify deals as stamping of documents is often a gating item for execution / closing.

• Aakash Choubey (Partner), Deepak Jodhani (Partner) and Kapish Mandhyan (Senior Associate),

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