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This article is written by Rashna Jehani, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions)   from LawSikho, as a part of her coursework. She is presently working as a Senior Associate at PDS legal.


In the wake of the evolution of the manner in which financial securities transactions are undertaken, the acting Hon’ble Minister of Finance Mr. Piyush Goyal has proposed certain amendments to the Indian Stamp Act, 1899 (“Stamp Act”) in the Finance Bill, 2019 (“Finance Bill”) which was tabled before the parliament. The Finance Bill proposes to introduce a uniform mechanism for collection of stamp duties on issuance and transfer of securities markets instruments. It intends to appoint the stock exchanges, depositories and clearing corporations for collecting stamp duties on behalf of the respective state governments and disburse the duty collected to the state governments based on the state based domicile of the buyer in the prescribed manner. One of the significant proposals includes levying of stamp duty on transfer of securities which are in dematerialized form.
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Some of the key reforms proposed by the Finance Bill have been discussed below:

  1. Definitions: The Finance Bill proposes to amend a few definitions to align them with the definitions provided under other statutes and also introduces a few new definitions like ‘allotment list’, ‘clearance list’, ‘clearing corporation’ to bring a parity between the Stamp Act provisions and the amendments proposed under the Finance Bill.

(i) Definition of Securities: The Finance Bill proposes to define ‘Securities’ to include ‘securities’ as defined in the Securities Contracts (Regulation) Act, 1956 (“SCRA”). By virtue of the said definition it appears that the amendments proposed under the Finance Bill may not be applicable to the securities of a private company. Further the deletion of Article 62 from the schedule of the stamp act pertaining to stamping of instruments as regards securities of a private company has risen the expectations of new amendments being underway which would introduce the new stamp duties that would be applicable in the said instance.  The applicability of the amendments to unlisted securities would have to be seen as the Hon’ble Supreme Court in cases such as Bhagwati Developers Private Limited versus Peerless General Finance & Investment Company Limited, Civil Appeal No. 7445 of 2004 and Naresh K. Aggarwala versus Canbank Financial Services, AIR 2010 SC 2722 held that the SCRA does not distinguish between listed and unlisted securities and therefore unlisted securities would come within the ambit of ‘marketable securities’ included in the definition of ‘securities’ in the SCRA.

(ii) Exclusion of ‘Debentures’ from the definition of ‘Bond’: Exclusion of ‘debentures’ is proposed from the definition of ‘bond’. Consequently, ‘debentures’ will be distinctly charged under Article 27 of the Union List.

(iii) Definition of ‘Debenture’: A new definition for ‘debenture’ has been proposed to be included as Section 2(10A), which encapsulates the instruments used in transaction structuring:

(a) debenture stock, bonds or any other instrument of a company evidencing a debt whether constituting a charge or not;

(b) bonds in the nature of ‘debenture’ issued by any incorporated company or body corporate;

(c) certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to 1 year as the Reserve Bank of India may specify from time to time;

(d) securitized debt instrument; and

(e) and any other debt instrument specified by SEBI from time to time.

(iv) Definition of ‘marketable security’: The term ‘marketable security’ is proposed to be defined rationally. The term is proposed to be amended to mean a security which is capable of being “traded” on a stock exchange, unlike the earlier definition where the security had to be capable of being “sold” on the stock exchange. Further clarity has been provided proposing the inclusion of the definition of ‘stock exchange’ thereby dispensing the ambiguity surrounding the scope of the term ‘stock exchange’.

(v) Definition of ‘market value’: The definition of ‘market value’ is also proposed to be amended to mean:

(a) in relation to a security traded in a stock exchange, the price at which it is so traded;

(b) in relation to a security which is not traded in a stock exchange but transferred through a depository, the price/consideration stated in the instrument of transfer;

(c) in relation to a security dealt with otherwise than in a stock exchange or a depository- means the price stated in the instrument of transfer.

(vi) Definition of ‘Instrument’: The definition proposed by the Finance Bill expands the term “Instrument” to include any document, electronic or otherwise, created for a transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded; and any other document mentioned in Schedule I of the Stamp Act which could exclude such instruments that may be specified by the Government, by notification in the Official Gazette.

(vii) Inclusion of new definitions: Definitions such as ‘allotment list’, ‘clearance list’, ‘clearing corporation’, ‘depository’, ‘issuer’ have been proposed to be included to ensure parity between the amendments under the Finance Bill and the provisions of the Stamp Act.

Principal Instrument to be Stamped

The Finance Bill proposes that in case of issuances and transfers undertaken on the stock exchanges or through the depositories, the instrument chargeable under Section 9A as regards the said issuance or transfer would be considered as the ‘principal instrument’ for the purposes of Section 4 of the Stamp Act. Further no stamp duty would be charged on any other instruments entered into in relation to such transactions.

Consolidation of Stamping  

The Finance Bill proposes to consolidate the stamp duty laws applicable to issuance, sale and transfer of securities made through a stock exchange or a depository or otherwise than through a stock exchange or a depository. It may be pertinent to note that under Entry 91 of List I of the Seventh Schedule the Constitution of India permits the Central Government to make laws as regards rates of stamp duty for certain instruments such as “bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts”. Therefore, it appears that the provisions of the Finance Bill would impact the stampability of the instruments pertaining to issuance of shares and debentures when the State Governments vide the powers vested under Entry 63 of the Seventh Schedule amend the state schedules to align them with the central amendments.

Dispensation of Exemption to Transfer of securities

Marking a shift from the exemption that was accorded under Section 8A (c) (ii) and (iii) of the Stamp Act where the transfer of beneficial ownership of securities and transfer of beneficial ownership of units, such units being units of a Mutual Fund including units of the Unit Trust of India established under Unit Trust of India Act, 1963, that were dealt by a depository were not liable to stamp duty under the Stamp Act or any other law in force.

The Finance Bill proposes to amend the said provision by allowing stamping of transfer of beneficial ownership of securities and transfer of beneficial ownership of mutual fund units, which are dealt with by a depository.

The sole exemption which has been retained pertains to Section 8A (c) (i) of the Stamp Act which exempts a transfer of registered ownership of securities from a person to a depository or a transfer from a depository to a beneficial owner to pay stamp duty under the Stamp Act or any other law in force.

Stamp Duty Collection Mechanism

As regards the securities listed on the stock exchanges, the Finance Bill proposes that the stamp duty would be collected by the stock exchange at the time of settlement of the transactions. The depository or clearing corporation would collect it in the manner as the Central Government would prescribe in its rules. The stamp duty collected would be disbursed by the stock exchange or the depository or clearing corporation, as the case maybe within 3 weeks of the end of the month to the State Government, the domicile of which would depend on the residence of the buyer, and in case the buyer is located out of India, it would be transferred to the State Government having the registered office of the trading member or broker of the buyer and in case there is no trading member, it would be sent to the State Government where the registered office of the participant would be situated.

Tabular representation of transaction-wise calculation of the stamp duty and payable by:

Nature of Transaction Stamp Duty Payable By Stamp Duty Calculated on
Sale of security through stock exchange Buyer Market Value of the Securities at the time of settlement of the transaction
Sale of security through depository Transferor Consideration amount specified in the instrument of transfer
Issue of securities to be collected by depository on the allotment list Issuer Total market value of the securities enlisted in the allotment letter
Issue of securities otherwise than through a stock exchange or a depository Issuer Total market value of the securities issued
Sale or transfer of securities otherwise than through a stock exchange or a depository Seller or Transferer Consideration amount specified in the instrument of transfer

Revised Stamp Rates

The rates of stamp duty proposed to be applicable to the issuance and transfer of debentures and securities have been proposed by amending Article 27 and including Article 56A.

The proposed rates are as follows:

Sl. No Entry Stamp Duty
1. Debentures
i. Issuance of debentures 0.005%
ii. Transfer or re-issuance of debentures 0.0001%
2. Security
i. Issuance of securities 0.005%
ii. Transfer of securities on delivery basis 0.015%
iii. Transfer of securities on non-delivery basis 0.003%
iv. Derivatives
a. Futures (equity and commodity) 0.002%
b. Options (equity and commodity) 0.003%
c. Currency and interest rate derivatives 0.0001%
d. Other derivatives 0.002%
v. Government securities 0%
vi. Repo on corporate bonds 0.00001%

Penalty Provisions

The Finance Bill proposes the inclusion of a penal provision in the form of Section 62A. Under the said section if the stock exchange or depository or the clearing corporation fails to collect the duty as required under sub-section (1) of Section 9A or does not transfer the stamp duty collected to the state government within 15 days from the prescribed time will attract a penalty of not less than INR 100,000  and which may extend up to 1% of the collection or transfer amount so defaulted. Further a failure to submit information or submit false documentation shall entail the said entities to a fine for INR 100,000 for each day during which the failure continues or INR 1 crore, whichever lesser.


The Finance Bill proposals are likely to dispense the concept of forum shopping of jurisdictions where instruments were stamped in states with lower duty rates. It seems that although the proposed amendments will increase the revenues for the state government, they are likely to cause an upsurge in the transaction costs for M & A deals and transactions involving listed securities. 

 Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.                    


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