India: Stamp Duty On Share Certificates

This note discusses the issues which have risen due to receipt of notice from the Collector of Stamps, Delhi, by companies registered in the National Capital Territory of Delhi, for demand of stamp duty on the share certificates issued by them as per the rates applicable in the National Capital Territory of Delhi.

The basic issues amongst corporates as regards these notices are outlined below:

1. Place of levy of stamp duty - Registered Office of the Company or where the Board Meeting for issue of shares is held?
2. Value on which stamp duty is to be charged and paid on issue of share certificates?

Indian Stamp Act 1899 is the parent Act, which was enacted by the Legislature as a fiscal statute, the principal object of which is to secure revenue of the government in form of stamp duty. India Constitution gave powers in the hands of State Governments to enact laws or make amendments to the Indian Stamp Act 1899 for its application to their respective jurisdictions for the things, documents and instruments executed therein except those for those on which the Union of India was authorized to levy and collect stamp duty.

Place of levy of stamp duty

By virtue of these powers, levy and collection of stamp duty on issue of share certificates falls within the sphere of State Legislature and accordingly many State Governments adopted the provisions of Indian Stamp Act 1899 for its applicability in their region with or without any modification or amendments while others opted for enactment of separate statute governing the levy and collection of stamp duty in their jurisdiction.

For instance, Legislature of the National Capital Territory of Delhi and State of Haryana has adopted the provisions of Indian Stamp Act 1899 with modifications and amendments in the Act while the Legislature of Uttar Pradesh earlier adopted the provisions of Indian Stamp Act 1899, but in the year 2010, enacted there separate statutes governing levy and collection of stamp duty in its region.

Hence, the levy and payment of stamp duty on issue of share certificates is governed by the provisions of Stamp Act as applicable to the respective state, where the instrument is first executed, since the subject falls within the State List of the Constitution of India.

However the Collector of Stamps, Delhi has recently issued notices to over 20,000 companies in Delhi calling for stamp duty payment on share certificates issued by them, taking a view that stamp duty is to be paid where the registered office of the Company is situated, creating perplexity in the minds of Corporate and Legal Professionals as to the real incidence of levy of stamp duty on issue of share certificates.

So all companies having their registered office in the National Capital Territory of Delhi and who have not paid the duty on share certificates with the Collector of Stamps, Government of Delhi should ensure due compliance of stamp law in order to validate their instruments evidencing the rights and entitlements on the shares contained therein either by making due payment or by taking up the matter with the authority, in case the duty is not leviable in Delhi.

Value on which stamp duty is to be charged

Moreover, another important issue is the determination of the value on which the stamp duty to be levied i.e. whether it should be the face value or the consideration value which means face value plus premium, if any, paid. The Indian Stamp Act in respect of issue of shares in physical form provides for levy of duty on value of shares and where shares are issued in dematerialized form, the duty shall be levied on the amount of securities issued.

It is to be clarified that all the aforementioned issues shall be determinable in strict interpretation of the law governing the subject matter with due consideration of the facts of each case.

For reference, Rates of Stamp Duty in Delhi, Haryana and Punjab for Certificate or other Document evidencing the right or title of the holder thereof, or any other person, either to any shares, scrip or stock in or of any incorporated company or other body corporate, or to become proprietor of shares, scrip or stock in or of any such company or body is mentioned below:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.