The Finance Act, 2019 introduced sweeping changes to the Indian Stamp Act, 1899, particularly in relation to securities transactions. Until then, stamp duty was imposed inconsistently by different states, creating disparities across the country. The amendments aimed to harmonise stamp duty rates and centralise collection, bringing clarity and efficiency in securities markets.
Effective from 1 April 2020, the amendments ended the exemption for transfers in dematerialised form, introduced uniform rates for issue and transfer of securities, and established a clear mechanism for collection and deposit. While these changes streamlined compliance, they also raised constitutional, administrative, and practical challenges, particularly around state revenue and overlapping powers.
This blog explores the background, the key highlights of the amendment, collection and deposit mechanisms, valuation basis, comparative impact (with a focus on Tamil Nadu), and M2K’s comments, followed by critical questions under “Food for thought.”
1. Background
Under Article 246 of the Constitution, both the Central and State Governments had powers to levy stamp duty depending on the nature of the transaction. For example, Rajasthan and Maharashtra levied duty on transfer of listed shares, whereas Tamil Nadu did not.
The Finance Act, 2019 amended the Indian Stamp Act, 1899 to establish a “one place, one agency, one instrument” system. By removing the exemption for dematerialised securities, it ensured uniform treatment of securities whether in physical or electronic form.
Though notified originally for 9 January 2020, the effective date was deferred to 1 April 2020.
2. Key highlights of the amendment
2.1 Summary of changes relating to stamp duty provisions
2.1.1 Transfer of securities held in dematerialized form
Earlier exempt, transfers of securities in demat form now attract stamp duty at prescribed rates.
2.1.2 Transfer of shares held in physical form
Unlisted shares in physical form were earlier taxed at 0.25%. Post-amendment, duty is reduced to 0.015% of sale consideration, cutting cost by 94%.
2.1.3 Issue / transfer of listed securities
Previously governed by states, now subject to uniform central rates under Section 9A.
2.1.4 Issue of unlisted shares
Also shifted from state jurisdiction to uniform rates under Section 9B.
2.1.5 Issue / transfer of debentures
The amendment removed the phrase “being marketable securities,” thus bringing all debentures—listed or unlisted—under stamp duty. Rates were revised accordingly.
2.2 New rates prescribed in relation to shares and debentures in FA 2019
The new Schedule I rates included:
- Issue of securities (other than debentures): 0.005%
- Transfer of securities (delivery): 0.015%
- Transfer (non-delivery): 0.003%
- Derivatives: 0.002%–0.003% depending on type
- Government securities: Nil
- Repo on corporate bonds: 0.00001%
- Issue of debentures: 0.005%
- Transfer/re-issue of debentures: 0.0001%
2.3 Collection & Deposit Mechanism
The amendment clarified who collects and to which government duty is paid. Examples:
- Stock exchange or clearing corporation collects for exchange trades, deposited with buyer’s state.
- Depositories collect for demat transfers or issues.
- For physical transfers of unlisted shares, state governments directly collect.
- For issues outside exchange or depository, duty goes to the issuer’s state.
This “location of buyer” principle determined the state entitlement.
2.4 Transfer value on which stamp duty is payable
Market value was defined as:
- Trading price (for stock exchange transactions)
- Price/consideration in instrument (for depository or other transfers)
This resolved ambiguity on valuation.
3. Comparison of impact on stamp duty rates in Tamil Nadu before and after amendment
To illustrate the shift, Tamil Nadu rates pre- and post-amendment show significant changes:
Shares
- Listed shares (delivery): from 0% to 0.015%
- Listed shares (non-delivery): from 0% to 0.003%
- Unlisted shares in demat: from 0% to 0.015%
- Unlisted shares (physical): from 0.25% to 0.015% (94% cut)
- Issue of shares: from Re.1 flat to 0.005%
Debentures
- Listed debentures (exchange): from 1% to 0.0001%
- Unlisted debentures (outside exchange): from 0% to 0.0001%
- Issue of debentures: harmonised at 0.005%
Clearly, while listed transactions now bear new duty, physical unlisted transfers became cheaper, and debenture costs fell sharply.
Our Comments
The amendments are a major step toward consistency, but not without hurdles:
- Since stamp duty is a shared constitutional power, state acceptance and implementation remain critical. States with higher earlier rates may resist due to revenue loss.
- Risk of dual levy exists if states impose additional duty beyond central rates.
- Removal of exemption for demat transfers could shift the incentive for dematerialisation toward compliance and transparency, rather than cost-saving.
- Ambiguity persists in cases involving non-resident buyers or transfers between two non-residents.
- Onus now lies with transferors for unlisted share transfers, diverging from the earlier practice of transferees bearing duty. Contracts will need careful drafting.
Food for thought
The amendments raise key questions that practitioners must consider:
- Will gifts of securities attract stamp duty, and at what value?
- Are buybacks and capital reductions treated as transfers for stamp duty?
- Do share warrants or similar instruments fall within ISA?
- Is LLP interest transfer covered?
- Does a bonus issue trigger stamp duty, and at what valuation?
