In this blogpost, Sayan Mukherjee, Student of University of Calcutta and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about, Stamp duty on investment transactions (share issuance, share transfer) in Maharashtra.



For a Mumbai based legal consultant, the first thing that he needs to know is about compliance requirements in a business transaction. Often clients step into the doors and put forward situations of investment transactions, demanding wide knowledge of local legislation. One such arena is payment of stamp duty.

Precisely, stamp duty is an indirect tax levied upon documents. In India, it is payable to the state government when an ‘instrument’ is executed. It is expressly stated under Maharashtra’s stamp duty law that “stamp duty is not levied on a transaction, but is leviable on an instrument”.

Basically, investment transactions deal with two concepts- transfer of shares and issuance of shares. Stamp duty on each has to be separately understood.

For transfer of share

According to S. 2(1) of the Bombay Stamp Act, 1958-

“‘Instrument’ includes every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt.”

However, vide 91 of Union List, State governments do not have any power to legislate for the payment of stamp duty on certain instruments (viz., bills of exchange, letters of credit and receipts, promissory notes, proxies, transfer forms for transfer of shares, debentures, bills of lading) where the Central government is solely empowered to collect stamp duty.

Stamp duty on transfer of share is borne by the person executing the document, i.e., transferor or the seller in case of a company’s share.But in practice, we see that it is always the transferee who affixes the share transfer stamps on the instrument at the time of registration of transfer in his favour.

The stamp must be affixed before or at the time of execution. According to section 108 of the Companies Act, 1956, a company shall not register transfer of shares unless a proper instrument of transfer is duly stamped and executed by the transferor and the transferee has been delivered to the company.

At the time of execution, cancellation of the adhesive stamp is mandatory so that they are not used again. Generally, this is done by writing name or initial across the stamps. The instrument is deemed to be unstamped if such cancellation is not made. (Muniamma Vs Arathi Cine enterprises (P) Ltd.).

Stamp duty on share transfer is an ad valorem duty in respect of the value of such stock or security according to the average price of the marketable security, on the date of the instrument.

The rate of such stamp duty in an incorporated company or other body corporate is- “25 paise for every Rs. 100 or part thereof of the value of the share” (vide art 62 of schedule 1- Indian Stamp Act)

After the Depositories Act was enacted, Indian stamp act inserted Section 8A. According to this new section, securities issued in electronic form need not be stamped provided the issuer pays consolidated stamp duty on the total amount of securities issued.

For issue of shares

According to section 3 of Indian Stamp Act, 1899, the company shall pay the stamp duty within thirty days after the Issue of Share Certificate as per the stamp act of respective State. Stamp duty in Maharashtra is governed by Bombay Stamp Act, 1958.

Stamp duty payable on share certificate is lower in some states than other. It is ‘higher in Maharashtra’ and probably ‘Lowest in Delhi’. In Maharashtra is governed by schedule 1 of the Act.

In this case, stamp duty is paid on the issue price and not on the value of the security.

Other norms similar to that of transfer of shares, stamp duty if not duly paid has serious consequences. According to the Bombay Stamp Act, Consequences of undervaluation or short payment:

  1. Any officer registering any instrument of conveyance, exchange, gift, certificate of sale, deed of partition or power of attorney to sell immovable property, deed of settlement or transfer of lease or any person with authority to receive evidence or any person in charge of public office before whom such instrument is presented, may-

give notice for payment of adequate stamp duty by making up the deficit and penalty at 2% p.m. of the deficit (not exceeding 200% of                                                    the deficit) or

refer a true copy of such instrument to the Collector, if he has reason to believe that it is undervalued.


2.On receipt of the instrument by the Collector, he can call for the difference between the amounts of duty payable and actually paid.

3.In addition, he has to levy penalty of 2% p.m. (not exceeding 200% of the deficit) of differential amount of duty or part thereof, where the persons mentioned in as have not levied any penalty.

4. Such instrument will not be admitted in evidence by any person having the authority to receive evidence, and/or registered unless penalty of 2% p.m. of the deficient stamp duty (not exceeding 200% of the deficit) is paid along with unpaid duty.

5. Every person with authority to receive evidence and every person in charge of public office can impound such an instrument when produced before such person.

6. On receipt of impounded document, the Collector can collect deficiency in stamp duty along with penalty of an amount equal to 2% p.m. (not exceeding 200% of the deficit) of the deficit portion of stamp duty or part thereof subject to a minimum penalty of Rs. 100.

7.A person can be punished with rigorous imprisonment for up to 6 months (not less than 1 month) and with fine up to Rs. 5,000, if it is proved that the instrument was undervalued or short payment of duty was made with intention to evade duty.

The true rate of stamp duty in Maharashtra on the certificate or other document of shares, scrip, stock, etc., including the amount of premium is Re. 1 for every Rs. 1,000 or part thereof.


By introduction of franking machines and electronic investment transaction benefits, tax bearers have been relieved of much complexity of stamp duty process. Moreover, several amendments like 2015 amendment of Bombay Stamp Act and landmark judgements like Hindustan Lever &Anr vs State Of Maharashtra &Anr has added tremendous dynamics to the subject of stamp duty in India.

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