PAYMENT OF STAMP DUTY ON SHARES

Stamp duty on shares is a tax imposed by government on the transfer of ownership of shares and securities as outlined under Companies Act 2013 and governed by Indian Stamp Act. It plays a crucial role in the financial landscape, influencing both individual investors and institutional players. This tax is typically levied when shares are bought or sold, and the responsibility for paying the duty falls on the buyer. The rates and regulations surrounding stamp duty on shares can vary significantly from one jurisdiction to another. In this article, we shall examine the applicability, rates of stamp duty on transfer of shares in 2024.

General rules for Stamp Duty on Share Transfer

• The instrument for the transfer of shares commonly known as the share transfer deed (SH-4), is required to be stamped with the applicable duty before the transfer is legally effective.
• Then the applicable stamp duty is levied on the instrument which varies from state to state. Every state has the authority to determine its stamp duty rates. However, some states may provide exemptions or concessions for stamp duty on certain types of transactions.
• Traditionally, the buyer is responsible for paying the stamp duty on the share transfer deed and it needs to be paid on the market value of the shares being transferred.
• Stamp duty is levied on the transfer of shares held in dematerialized accounts through the depository system.
• The Securities Exchange Board of India’s (SEBI) regulation also plays a crucial role in regulating aspects of share transfer, its policies can influence the broader framework within which share transfers occur.

Rates of Stamp duty

• On Issue of share certificate: Stamp duty is levied at a rate of 0.005% on the issuance of share certificates.
• On Transfer of shares: A stamp duty of 0.015% is applicable on the transfer of shares, whether the transfer is in physical form or demat form.

Timeline for Issuance of Share Certificate and Payment of Stamp Duty

Initially, as per the Companies Act, 2013, Share certificates in form SH-1 can be issued to the subscribers within 60 days of the incorporation and stamping of such share certificates to be ensured within 30 days of such issuance. Thereafter, in the event of subsequent allotments also, Share certificates are to be issued within 60 days of such allotment and stamping of such share certificates to be ensured within 30 days of such issuance.

Modes of payment of stamp duty

The accepted method for payment of stamp duty on transfer of shares varies depends on the state where the transaction takes place. However, there are certain methods which are commonly accepted, they are:

• Physical stamp papers: The most traditional form of payment of stamp duty on share transfer deed is using physical stamp papers. In this, the share transfer deed is executed on stamp paper and is affixed to the document.
• E-stamping: Many states have transitioned to e-stamping which involves payment in electronic means for which a unique identification number is generated and affixed on the share transfer deed.
• Online Payment: Investors can now use the official website of the stamp and registration department or another designated online platform to pay stamp duty using net banking, credit cards, or debit cards.
• Payment at Designated banks: Some states provide payment to be made at the designated banks. The bank provides a receipt as proof of payment.

Consequence of Non Payment of Stamp Duty

In case of non-payment of stamp duty or evasion of payment of stamp duty on the issue of share certificate, the company shall be liable for heavy penalty, which may extend to 10 times of the duty.

Conclusion

Stamp duty on shares is a multifaceted aspect of financial markets that influences investor behaviour, market dynamics, and government revenue. As financial market continue to evolve it is important to understand the impact to make informed decisions. Therefore, for more new information and compliances a team of expert advisors from Legal Window is here to assist you at every step, feel free to reach us at admin@legalwindow.in.