indian-stamp-act-1899-and-rules-summary

Context: The Amendments in the Indian Stamp Act, 1899 brought through Finance Act 2019 and Rules made thereunder have come into force.

Background:

  • The present system of collection of stamp duty on securities market transactions led to multiple rates for the same instrument.
  • This had resulted in jurisdictional disputes and multiple incidences of duty, thereby raising the transaction costs in the securities market and hurting capital formation.
  • The relevant provisions of the Finance Act, 2019 amending the Indian Stamp Act, 1899 and the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 were notified simultaneously.

Salient features of amendments introduced:

To achieve the rationalization of stamp duty structures, the amendments provide for the following structural reforms -

  1. The stamp-duty on sale, transfer and issue of securities shall be collected on behalf of the State Government by the collecting agents.
    1. These agents shall transfer the collected stamp-duty in the account of the concerned State Government.
  2. In order to prevent multiple incidences of taxation, no stamp duty shall be collected by the States on any secondary record of transaction associated. 
    1. In such cases depository / stock exchange has been authorised to collect the stamp duty.
  3. The stamp duty, in the new system is levied only on one side (payable either by the buyer or by the seller but not by both, except in case of certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion).
  4. The collecting agents shall be the Stock Exchanges or authorized Clearing Corporations and the Depositories.
  5. The Central Government has also notified the Clearing Corporation of India Limited (CCIL) under the jurisdiction of RBI to act as a collecting agent. 

Purpose of amendments:

The Central Government, after due deliberations and consultations with the States, through requisite amendments in the Indian Stamp Act, 1899 and Rules made thereunder, has created 

  • The legal and institutional mechanism to enable states to collect stamp duty on securities market instruments at one place by one agency (through Stock Exchange or Clearing Corporation authorized by it or by the Depository) on one Instrument.
  • A mechanism to facilitate ease of doing business and to bring in uniformity of the stamp duty on securities across States and thereby build a pan-India securities market.
  • A mechanism for appropriately sharing the stamp duty with relevant State Governments has also been developed which is based on the state of domicile of the buyer.

Potential Impact:

  • Enhance revenue productivity: This rationalized and harmonized system through centralized collection mechanism is expected to minimize cost of collection and enhance revenue productivity. 
  • Ushering balanced regional development: This system will help develop equity markets and equity culture across the length and breadth of the country, ushering in balanced regional development.

Indian Stamp Act, 1899

  • The basic purpose of the Indian Stamp Act 1899 is to raise revenues for the Government.
  • The Act contains the provisions regarding levying, collection and payment of stamp duty.
  • Under the Act, certain documents need to be legitimised by paying applicable stamp duty on them. 
  • The proceeds of stamp duty leviable in any financial year are assigned to the State.
    • As the revenue from stamp duty is assigned to the State in which they are collected, each State Government has prescribed by rule that stamps purchased in the particular State alone should be used for instruments executed in it.
  • Stamp duty is a State subject and hence would vary from State to State. The stamp duty in many States is paid as per the market value as assessed by the stamp office.
  • However, parliament can make a law in respect of stamp duty. It can prescribe rates of stamp duty. 
    • The stamp duty rates prescribed by the parliament in respect of bills of exchange, cheques, transfer of shares etc will prevail all over India. 
  • The State Governments have powers to fix stamp duties on all other documents. 

Source: https://pib.gov.in/PressReleasePage.aspx?PRID=1635399

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