This article is written by Advocate Shamika Vaidya pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.com. Here she has listed stamp duty attracted on M&A transaction.

Listed below is the stamp duty in four states namely, Maharashtra, West Bengal, Karnataka, Delhi for M&A transactions.

1. Share Purchase Agreement
2. Business Purchase Agreement
3. Indemnity
4. Demerger
5. Merger (Amalgamation)

Share Purchase Agreement

Share Purchase Agreement is a conveyancing document that transacts the sale and purchase of the shares between the buyer and seller.

Any other document that is relating to the transaction of the shares is a document relating to the sale of shares.

West Bengal

Article 5(b)(ii) of Schedule 1-A of the West Bengal Stamp Act mentions the stamp duty on the agreement or memorandum of agreement relating to the sale of shares in an incorporated company or another body corporate is fifty paise (0.50 Rs) for every five thousand rupees (5,000/-) therefore the rate of stamp duty is (0.01%) of the value of the share.

Share Transfer Forms (Transfer of Shares)

According to Article 62(a) of Schedule 1-A of the West Bengal Stamp Act the rate of stamp duty on transfer of shares of an incorporated company or another body corporate with or without consideration is 0.25 % that is twenty-five paise for every hundred rupees of the value of the share.

Delhi

Article 5(b) of Schedule 1-A of the Delhi Stamp Act states that the stamp-duty on the agreement or memorandum of agreement related to the sale of share of an incorporated company or any other body corporate is Rs 1/- one rupee for every Rs. 10,000/-  that is the rate of stamp duty is 0.01% and the upper cap for the duty is Rs.1,000/- of the value of the share.

Share Transfer Forms (Transfer of Shares)

Article 62(a) of Schedule 1-A  of the Delhi Stamp Act states the stamp duty for the transfer of shares in any incorporated company or any body corporate with or without consideration is seventy -five paise for every hundred rupees, the rate of the duty being 0.75% of the value of the share.

Bombay

Article 5(c) of the Schedule 1-A of the Bombay Stamp Act provides that if an agreement its records or memorandum of agreement are related to the purchase or sale of shares of any incorporated company or other body corporate is 0.005% of the value of shares at the time of its purchase or sale. Even in the case of the Agreement between or through members of recognized stock exchange the stamp duty is the same.

Karnataka

Article 5(c) of the Schedule 1-A  of the Karnataka Stamp Act mentions that the stamp duty on the agreement or memorandum of agreement if relating to  the purchase or sale of shares in or of any incorporated company or other body corporate is One rupee (Rs.1/-) for every ten thousand rupees (Rs.1000/-)  that is 0.1% of the value of the share at the time of its purchase or sale. The stamp-duty remains the same in the case the agreement is between or through members of the recognized stock exchange.

Asset Purchase Agreement/ Business Transfer Agreement

Business Transfer Agreement is entered between two parties when they want to go ahead with a slump sale that is when one company intends to sell an undertaking to another for a lump sum consideration. The seller cannot cherry pick any of the liabilities or assets, the whole of the business is transferred from one party to the other along with the clients, assets, vendors, liabilities, and assets and the value of the consideration derived is not based on the individual assets but business as a whole. There are two ways by which a business transfer agreement is structured  –

• As an agreement to sell (for movables which can be transferred by delivery), that is the agreement itself does not act as a conveyancing instrument but merely describes the transaction, date of payment of consideration, date of transfer and binds the parties. This will not attract stamp duty if the agreement does not create the transaction (for movables).
• As a conveyancing agreement that initiates the transfer. For immovable property, this will require to be stamped.

Although for the purpose of consideration individual assets are not considered the same have to be considered individually for the purpose of stamp duty as there is no provision for business transfers under the Acts. Therefore each asset to be transferred whether movable or immovable have to be recognized and the imposition of the stamp duty is in accordance to the regional provisions.

Delhi

Conveyance

Article 23 of  Schedule 1A of the Delhi Stamp Act mentions the stamp duty on the conveyance is  3% of the consideration amount set forth in the instrument. The stamp duty is further reduced to 2% if it is jointly or individually held by woman/women.

Agreement to Sell

Article 5(c) of the Schedule 1A of the Act states the stamp duty for agreement or memorandum of agreement relating to the sale of the immovable property as well as movable property to be fifty rupees.

Maharashtra

Conveyance

Article 25 of the Bombay Stamp Act mentions about the stamp duty on the conveyance related to the movable property is three percent of the market value of the property.

if related to the movable property to be Rs. 15/- for every five hundred rupees that is (15%).

If the transfer is related to the immovable property the stamp duty paid is twenty-five rupees for every rupees five hundred. The duty varies with respect to the area of the property.

Agreement to Sell

Article 5(h)(A)(iv) of the Schedule 1 states the Stamp duty on the agreement or memorandum of agreement that creates any obligation, right or interest and creates a monetary value.

• If the amount exceeds rupees ten lakh the rate of stamp duty is 0.2% of the amount agreed in the contract.
• If the amount is less than rupees ten lakh than the rate of stamp duty is 0.1% of the amount agreed in the contract and the minimum cap is rupees 100/-.

Karnataka

Agreement to Sell

Article 5(e)(ii) of the schedule of the Act states the stamp duty on the agreement or memorandum of agreement related to the sale of immovable property where possession of the property is not delivered. The stamp duty is ten paise for every hundred rupees (0.1%) on the market value equal to the amount of consideration. The upper cap is rupees twenty thousand (Rs. 20,000/-) and the lowest is rupees five hundred (Rs. 500/-).

Movable property

Article 5(g) mentions the stamp duty on the agreement or memorandum of the agreement relating to the stamp duty movable property where the possession of the property is not delivered to be ten paise for every one hundred rupees (0.1%) on the market value equal to the amount of consideration. The maximum cap is rupees twenty thousand and the minimum cap is rupees five hundred ( Rs.500/-).

Conveyance

Article 20 of the schedule of the Karnataka Stamp Act states the stamp duty to be five percent on the market value of the property. This applies for both movable as well as immovable property.

Industrial Machinery

Lands/buildings are immovable property, machinery installed in factory premises (fixed to the ground can be considered as an immovable property depending on the degree of permanency of the attachment and the purpose of installing and attaching the machinery. For example, a fertilizer plant to be sold in a slump sale along with the land can be considered as immovable property if it was always intended that the plant remains permanently affixed to the land.

When the industrial machinery is treated as movable property the stamp duty to be paid is in accordance to Article  20 (5)(i) that is three percent (3%) of consideration or market value of the property, whichever is higher.

When industrial machinery is treated as immovable property the rate of stamp duty is five percent (5%) of consideration or market value of the property, whichever is higher.

West Bengal

Immovable Property Agreement to Sell

Article 5(d) of Schedule 1-A of West Bengal Stamp Act states the stamp duty for the agreement or Memorandum of an agreement relating to the sale of immovable property to be six percent (6%) of the market value of the property and  the maximum duty payable is rupees twenty-five lakh (Rs. 25,000/-).

Seven percent (7%) when the value of the property exceeds rupees thirty lakhs (Rs. 30,00,000/-) and is situated in the place to which Kolkata Improvement Act, 1911 or the Howrah Improvement Act,1911 extends. The rate of stamp duty is same in the case the property is situated in areas other than mentioned in clause (a). Agreement to sell is also a document related to the sale and therefore comes under the article.

Conveyance

Article 23 of the Schedule IA of the Act states the stamp duty on the conveyance related to the sale of immovable property to be six percent on the market value if the market value is less than rupees twenty-five lakh and seven percent when it exceeds rupees twenty-five lakh.

Stamp Duty on Indemnity

Shareholder Agreements or Share Subscription Agreements often have an indemnity clause and need to be stamped accordingly.

Karnataka

Article 29 of Schedule 1-A of Karnataka Stamp Duty Act,1957 states the stamp-duty for Indemnity Bond  when the amount indemnified does not exceed rupees one thousand the stamp duty is Fifty paise for every one hundred  rupees that is (0.5%) , in case where it exceeds more than rupees one thousand the stamp duty paid is two hundred rupees.

West Bengal

Article 34 of Schedule 1A states the Stamp duty in Indemnity Bond to be between the range of Rupees 2 to 20 depending on the amount of indemnity.

Mumbai

Article 35 of the Schedule 1 of the Bombay Stamp Act states the stamp duty on indemnity bond to be Rs. 500/- (five hundred Rupees).

Delhi

Article 34 of the Schedule 1-A of the Delhi Stamp Act states that the stamp duty when the amount indemnified does not exceed rupees one thousand (Rs. 1000/-) is 2% and 0.5%. The stamp duty is one hundred rupees (Rs.100/-) when the amount exceeds rupees one thousand.

Arbitration clause

Most shareholders agreements have an arbitration clause. Since arbitration clause comprises a separate agreement in itself as per the Arbitration and Conciliation Act, 1996, parties have now started stamping the arbitration clause with INR 100 so that the enforceability of the agreement by arbitration is not challenged when there is a dispute.

Allotment of shares

Karnataka

Article 31 of Schedule states the stamp duty on the letter of allotment of the shares in any company or proposed company is rupees one (Rs. 1/-).

Delhi

Article 36 of the Schedule 1A of the Delhi Stamp Act states the stamp duty to be rupee one for the letter of Allotment of shares in any company or proposed company.

Mumbai

Article 37 of the Bombay Stamp Act states the stamp duty to be rupee one (Rs. 1/-) for the letter of Allotment of shares in any company or proposed company.

West Bengal

Article 36 of Schedule 1A of the West Bengal Stamp Act states the stamp duty to be 60 paise (Rs. 0.60/-) for the letter of Allotment of shares in any company or proposed company.

Transfer from Demat Account

Dematerialization of the shares that are getting physical share certificates converted to an electronic format that is maintained in an account with the Depository Participant.

Section 8B of the Indian Stamp Act, states that Securities dealt in the depository are not liable to stamp duty. Therefore there is no stamp duty on the transfer of shares held in Dematerialised (Demat) form.

Stamp Duty on Demerger

Karnataka

• Article 20(4)(ii) of the Schedule of the Karnataka Stamp Act states the stamp duty in case of demerger is three percent (3%) on the market value of the property of the transferor company located within the state of Karnataka and transferred to the resulting company.
• Or, an amount equal to one percent (1%) of the aggregate value of shares issued or allocated to the resulting company and in addition the amount of consideration if any paid for such demerger whichever is higher.

Maharashtra

• The Stamp duty should not exceed 5% of the true market value of the true market value of the immovable property when the transfer is taken place within Maharashtra.
• Or, 0.7% of the aggregate of the market value of share allotment.

Stamp Duty on Merger

Maharashtra

Article 25 of Schedule 1 of the Bombay Stamp Act states the stamp duty on conveyance relating to the amalgamation of companies under the Companies Act to be 10 % of the aggregate of the market value of the shares issued or allotted in exchange or otherwise and the amount of consideration paid for such amalgamation. The Article sets an upper cap on the stamp duty;

• It should not exceed 5% of the true market value of the immovable property of the transferor company in Maharashtra.
• An amount equal to (0.7%) of the aggregate of the market value of the shares issued or allotted in exchange. and the amount of consideration paid for amalgamation, whichever is higher.

Karnataka

Article 20 (4)(i) of the Schedule of the Karnataka Stamp Act states the stamp duty on the amalgamation of the companies to be 2% of the Market Value of the properties that are located within the State of Karnataka.

During a merger between a subsidiary and a parent company, the stamp duty paid is 1% of the aggregate value of shares that are issued or alloted in exchange or on the amount of consideration that is paid, whichever is higher.

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