Frequently Asked Questions (FAQs) on Indian Stamp Act, 1899 Amendments and

Rules made thereunder

1. Why amendments in the Indian Stamp Act, 1899 have been made?

Answer: The amendments have been carried out with respect to securities market
transactions. The present system of collection of stamp duty on securities market
transactions has led to multiple rates for the same instrument, resulting in
jurisdictional disputes and multiple incidences of duty, thereby raising the
transaction costs in the securities market and hurting capital formation.

2. What is the basic framework being created through the amendments to the
Indian Stamp Act, 1899?

Answer: Through the said amendments, the Central Government has created the legal
and institutional mechanism to enable States to collect stamp duty on securities
market instruments at one place by one agency (through the Stock Exchanges or
Clearing Corporations authorised by the Stock Exchange or by the Depositories) on
one instrument. A mechanism for appropriate sharing the stamp duty with relevant
State Government based on State of domicile of the buying client has also been
included. In the extant scenario, stamp duty was payable by both seller and buyer
whereas in the new system it is levied only on one side (payable either by the buyer or
by the seller but not by both, except in case of certain instrument of exchange where
the stamp duty shall be borne by both parties in equal proportion).
3. What are the expected key benefits of amendments in the Indian Stamp Act,
1899?

Answer: The amendments in the Indian Stamp Act, 1899 and Rules made thereunder
will facilitate ease of doing business and will bring in uniformity and affordability of
the stamp duty on securities across States and thereby build a pan-India securities
market. Further, cost of collection would be minimised while revenue productivity is
enhanced. Further, this system will help develop equity markets and equity culture
across the length and breadth of the country, ushering in balanced regional
development.

4. The amended provisions of the Stamp Act and Rules made thereunder will come
into force from which date?

Answer: The amended provisions of the Indian Stamp Act, 1899 brought through
Finance Act, 2019 and Rules made thereunder shall come into force w.e.f 1st July,
2020.

Page 1 of 6
5. What all instruments are covered under Part AA of Chapter II of the amended
Stamp Act and the Rules made thereunder?

Answer: Each security is charged with a duty as specified in Schedule I of the

amended Stamp Act. Securities are defined to include all those instruments specified
in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956; a
“derivative” as defined in clause (a) of Section 45U of the Reserve Bank of India
Act, 1934; a certificate of deposit, commercial usance bill, commercial paper and
such other debt instrument of original or initial maturity up to one year as the
Reserve Bank of India may specify from time to time; repo on corporate bonds; and
any other instrument declared by the Central Government, by notification in the
Official Gazette, to be securities for the purposes of this Act.

6. Who will collect the Stamp Duty on behalf of the State Government?

Answer: The stamp-duty on sale of securities, transfer of securities and issue of

securities shall be collected on behalf of the State Government by the Stock Exchange
or Clearing Corporation authorized or Depositories (authorized collecting agents).
The Central Government has also notified the Clearing Corporation of India Limited
(CCIL) and the Registrars to Issue and / or Share Transfer Agents to act as collecting
agents.

7. What is the manner of collection of stamp duty under new system?

Answer: For all exchange based secondary market transactions in securities, Stock
Exchanges shall collect the stamp duty; and for off-market transactions (which are
made for a consideration as disclosed by trading parties) and initial issue of securities
happening in demat form, Depositories shall collect the stamp duty.

8. When and how will the stamp duty be transferred to each State?

Answer: The collecting agents shall within three weeks of the end of each month and
in accordance with the Rules made in this behalf by the Central Government, transfer
the stamp-duty collected to the State Government where the residence of the buyer is
located and in case the buyer is located outside India, to the State Government having
the registered office of the trading member or broker of such buyer and in case where
there is no such trading member of the buyer, to the State Government having the
registered office of the participant. The collecting agent shall transfer the collected
stamp-duty in the account of concerned State Government with the Reserve Bank of
India or any scheduled commercial bank, as informed to the collecting agent by the
Reserve Bank of India or the concerned State Government.

9. What would be the fees for the collecting agent?

Answer: The collecting agent may deduct 0.2 per cent of the stamp-duty collected on
behalf of the State Government towards facilitation charges before transferring the
same to such State Government.

Page 2 of 6
10. How the State Government will communicate regarding stamp duty matter?

Answer: The State Government shall appoint a nodal officer for all official
communications with the principal officers (appointed representatives of collecting
agents) for the purposes of collection of stamp-duty in accordance with stamp duty
Rules.

11. What if collecting agents fails to transfer the duty to the State Government
within the time period specified in the Stamp Act and Rules made thereunder?

Answer: The collecting agents have to transfer collected stamp duty to the State
Government within three weeks of the end of each month. Any collecting agent who
fails to collect the stamp duty or fails to transfer stamp duty to the State Government
within fifteen days of the expiry of the time specified, shall be punishable with fine
which shall not be less than one lakh rupees, but which may extend up to one per cent
of the collection or transfer so defaulted.

12. Will any information be provided to the State Government in respect of the
stamp duty collected?

Answer: The collecting agent shall submit a return of stamp-duty collected on

various transactions to the State Government including details of defaulters in the
prescribed format on a monthly basis to be furnished manually or electronically
within seven days of the succeeding month. Further, the collecting agent shall furnish
a consolidated return of stamp-duty collected during a financial year manually or
electronically on or before the 30th June immediately following that financial year to
the concerned State Government and the Accountant General of each State. The State
Government may provide an online facility by which a collecting agent shall upload
State wise monthly and yearly returns. Further, if a collecting agent fails to submit
details of transactions to the Government or submits a document or makes a
declaration which is false or which such person knows or believes to be false, shall be
punishable with fine of one lakh rupees for each day during which such failure
continues or one crore rupees, whichever is less.

13. Can collecting agents utilise amount collected on behalf of States for any other
purpose?

Answer: The stamp-duty collected on behalf of the State Government shall not be
utilized by any collecting agent for any other purpose and shall be transferred to the
State Government along with interest earned on such amount, if any.

14. Who will collect the stamp duty in case of private placements/ e-IPOs through
Stock Exchange platform?

Answer: As per section 9A(1)(c), stamp duty shall be collected by the Depository on
any creation or change in the records of a Depository, pursuant to issue of securities.

Page 3 of 6
 This should be followed even in case of private placements/ e-IPOs through stock
exchange platform.

15. Whether stamp duty is applicable on bonus issue of shares?

Answer: In case of bonus issue, there is no consideration which means bonus shares
are issued free to existing shareholders. Section 21 of the Amended Indian Stamp Act
read with sub-section 16B of Section 2 clearly indicates that stamp duty is to be
collected on market value which is based on price or consideration involved.
16. Whether stamp duty is applicable on units of Mutual Fund?
Answer: Sub-Section 23A of Section 2 of the Indian Stamp Act, 1899 defines
securities as including securities defined in clause (h) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (SCRA). Further, it may be noted that clause (h)(id)
of Section 2 of SCRA, 1956, which defines “securities” includes “units or any other
such instrument issued to the investors under any mutual fund scheme” under its
ambit. Therefore, units of Mutual Fund Schemes are to be considered as securities for
the purpose of applicability of stamp duty also
17. Which section of amended Indian Stamp Act, 1899 (section 9A or 9B) is
applicable for Mutual Funds for the purposes of collection and transfer of stamp
duty to States/UTs?
Answer: Since RTI and/or STA of Mutual Funds have been declared as Depositories
under the Stamp Act vide gazette notification dated 8th Jan, 2020, the entire mutual
fund business gets covered under Section 9A of the Indian Stamp Act. Section 9B is
not applicable to them. RTAs have to function like a Depository in respect of
collection of Stamp Duty on issue and sale or transfer of mutual funds in SoA form.
The extant Stamp Rules applies to them as well i.e. the operational clause for them is
Section 9A and not 9B of the Indian Stamp Act.
18. Who will collect and transfer the Stamp duty to States in case of transactions in
units of Mutual Funds and AIFs in Statement of Account/ Physical (non-demat
form)?
Answer: To provide for collection of Stamp Duty on transactions in mutual fund and
AIF units in the statement of account/physical (non-demat) form, RTI and/or STA
have been notified (vide Gazette Notification dated 8th January, 2020) as a
“Depository” for the limited purposes of acting as a “collecting agent” under the said
Act and the Rules made thereunder. Accordingly, for non-demat Mutual Fund and
AIF transactions, collection of stamp duty by RTAs shall be governed by the
provisions of Section 9A(1)(b) and 9A(1)(c) and the transfer of stamp duty to the
respective States shall be governed by the provisions of Section 9A (4). Thus, the
transfer of collected stamp duty to respective States/UTs by RTAs also is governed by
buyer-based principle as covered in Section 9A(4) and not on the basis of registered
office of the issuer.

Page 4 of 6
19. Who will collect the Stamp duty in case of Mutual Fund and AIF transactions
(sale, transfer and issue of units in demat mode) through recognized Stock
Exchange or Depository?
Answer: As clear from the Act that in case of Mutual Fund and AIF transactions
(sale, transfer and issue of units in demat mode) through recognized Stock Exchange
or Depository as defined under SCRA, 1956 and Depositories Act, 1996 respectively,
the respective Stock Exchange/authorized Clearing Corporation or a Depository is
already empowered to collect stamp duty as per Amended Indian Stamp Act and
Rules made thereunder.
20. On transfer of units of Mutual Funds and AIFs held in physical form stamp duty
is to be collected from the transferor. As these transfers happen outside the
purview of RTAs what will be process of collection and remittance of stamp
duty?
Answer: Stamp duty has to be collected and remitted only by collecting agents (RTA
for physical units and Depositories for demat units). Where Mutual Fund and AIF
units are issued in physical form, stamp duty has to be collected and remitted by
RTA. Accordingly, when the transferee approaches RTA for effecting the transfer in
their books, RTA will be collecting the stamp duty from the transferor before
effecting the transfer which will then be remitted to the state of domicile of the
transferee.
21. How stamp duty is calculated in case of issuance of Mutual fund Units?

Answer: Stamp duty is imposed on the value of units excluding other charges like
service charge, AMC fee, GST etc. If the units are issued for Rs.1 crore then Rs.500
would be the stamp duty to be remitted to States.

22. Whether switching in Mutual fund attract stamp duty?

Answer: The issue of fresh units in the switched scheme would also attract stamp
duty even though there is no physical consideration paid or transfer of ownership.
This is because the new units are deemed to have been purchased with the NAV
realized from the sale of earlier units.

23. Whether stamp duty is applicable on redemption of Mutual Fund units ?

Answer: Redemption is not liable to duty as it is neither a transfer nor an issue nor a
sale.
24. Whether stamp duty will be charged on off-market transfer of securities without
consideration such on gift, legacy transfer etc.?
Answer: No. Section 21 of the Amended Indian Stamp Act read with sub-section 16B
of Section 2 clearly indicates that stamp duty is to be collected on market value which
is based on price or consideration involved.

Page 5 of 6
25. Whether stamp duty is applicable at multiple levels of a single transaction (on
account of procedural requirements) and to which State Government the stamp
duty amount be transferred in such cases?
Answer: It should be ensured that double incidence of stamp duty doesn’t occur on
any transaction. Where, before being credited in the buyer’s demat account, the
securities are transferred from the demat accounts of issuer to clearing corporation,
member, etc., the stamp duty shall be transferred to the State Government where the
residence of the buyer is located.
26. What are the stamp duty rates being implemented through the Amended Indian
Stamp Act?

Stamp Duty Rates w.e.f. 1st July 2020

Instrument Rate

Issue of Debenture 0.005%

Transfer and Re-issue of debenture 0.0001%.

Issue of security other than debenture 0.005%

Transfer of security other than debenture on delivery basis; 0.015%

Transfer of security other than debenture on non-delivery basis 0.003%

Derivatives––

(i) Futures (Equity and Commodity) 0.002%

(ii) Options (Equity and Commodity) 0.003%

(iii) Currency and Interest Rate Derivatives 0.0001%

(iv) Other Derivatives 0.002%

Government Securities 0%

Repo on Corporate Bonds 0.00001%

***

Page 6 of 6