Stamp Duty on Issuance of Shares

The obligation to pay stamp duty on share issuance stems from the Indian Stamp Act, 1899, further clarified by guidelines issued by the Institute of Company Secretaries of India (ICSI) and the Institute of Chartered Accountants of India (ICAI). Here's a breakdown of the key aspects:

1. Stamp Duty Applicability: Remember, stamp duty becomes payable each time your company issues share certificates, and the clock starts ticking from the date of issuance – you have 30 days to comply.

2. The Patchwork Past: Historically, the landscape of stamp duty rates and payment procedures was a complex web of state-specific rules, often leading to confusion and inconsistencies.

3. The Dawn of Uniformity: Central Rules (2020): A significant step towards simplification was the introduction of the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations, and Depositories) Rules, 2019, effective from July 1st, 2020. This brought in a uniform stamp duty rate across the nation under the progressive 'One Nation, One Policy' initiative.

Currently, the stamp duty rate stands at a modest 0.005% of the market value of the shares being issued, regardless of whether they are in physical or electronic form. The market value is typically determined by the price or consideration mentioned in the share certificate.

While the rates have achieved uniformity, the process for actually paying the stamp duty remains fragmented across different states. Please note that it is crucial to visit the respective state government's revenue or stamp duty website for the most up-to-date information and specific procedures.

Ignoring or delaying the payment of stamp duty can prove to be a costly mistake. Failure to comply within the 30-day timeframe can attract significant penalties. The process typically involves:

• Submitting an application to the relevant Registrar or Sub-Registrar.

• Attending a hearing.

• Facing a potential penalty of up to 10 times the applicable stamp duty after a potentially lengthy procedure.

To further clarify common queries, here are some frequently asked questions regarding stamp duty on share issuance:

• Is Stamp Duty Payable on Bonus Issue of Shares? No. Since bonus shares are issued without any consideration, no stamp duty is applicable.

• Is Stamp Duty Applicable on Issue of Shares through ESOP?  Yes. Stamp duty is payable on the exercise price of the shares, as it represents the consideration mentioned in the allotment list.

• Is Stamp Duty Required for Off-Market Transfers Without Consideration (e.g., Gifts, Legacy Transfers, Transmission)? No. As per Section 21 of the Amended Indian Stamp Act read with Section 2(16B), stamp duty is based on the consideration or market value. If no consideration is involved, no stamp duty is payable.

• Is Stamp Duty Payable on Issuance of Duplicate Share Certificates? No. Duplicate share certificates do not constitute issuance, sale, or transfer of securities, so no stamp duty applies.

• How is Stamp Duty Collected for Shares Issued in Electronic Form? Stamp duty is collected through the Depository System (e.g., NSDL or CDSL) when shares are issued electronically.

• What is the Role of Directors in Stamp Duty Compliance? Directors and authorized personnel bear the responsibility of ensuring that stamp duty is paid on time to avoid penalties.

• To summarize, remember these crucial points:

• A stamp duty of 0.005% is applicable on the market value of all shares issued.

• The payment must be made within 30 days of share certificate issuance.

• Non-compliance can result in hefty penalties, potentially reaching 10 times the original stamp duty amount.

• While the rates are now uniform, the payment processes remain state-specific.

• While the uniformity in rates was a welcome change, the persistence of fragmented state-wise payment processes continues to pose challenges for companies operating across multiple jurisdictions. To truly simplify compliance and foster a more business-friendly environment, it is highly recommended that the government consider introducing a single-window online system for stamp duty payments applicable across all states.

• Furthermore, integrating this system with the Ministry of Corporate Affairs (MCA) portal would streamline the entire process. Replacing the current punitive penalty regime with a system of Late Submission Fees (LSF), similar to those implemented by the Reserve Bank of India (RBI) for various filings, would provide a more reasonable and less threatening approach to non-compliance.

• By understanding your stamp duty obligations and ensuring timely compliance, you can avoid unnecessary financial burdens and focus on what truly matters – the growth and success of your company. Don't let a seemingly small oversight cast a shadow on your journey. Stay informed, stay compliant, and stay ahead!

This blog provides general information and should not be considered legal advice. It is recommended to consult with a legal professional or  a Practicing Company Secretary for specific guidance related to your company's circumstances.