New Delhi: The finance ministry on Thursday clarified that any transaction of securities in physical form, which are not through stock exchanges or depositories, would be subjected to stamp duty and the onus will be on the issuing company to pay the duty to the central government. It further clarified that there will be no stamp duty when mutual fund houses create a segregated portfolio. Fund houses create such a portfolio when there is a default.
These clarifications will ensure that all transactions in securities either equities, bonds, mutual funds by listed or unlisted companies whether off-market are uniformly treated for the purpose of the stamp duty.
The government had amended the Indian Stamp Act, 1899 which came into effect on July 1, 2020, however, based on the new change in regulations, there were lack of clarity on certain issues such as transfer of securities, particularly in the physical form, application of exchange rate in case of off-market transactions and whether duty would be levy if a mutual fund house creates a segregated portfolio. The department of economic affairs under the finance ministry has issued a list of frequently asked questions (FAQ) clarifying its stand.
The FAQ also clarified exchange rates in case of off-market transactions in foreign currencies. According to it, the parties will need to consider foreign exchange a day prior to the date of transfer.
Samir Kapadia, Partner, Nangia Andersen LLP, “The amendment has achieved several objectives in one stroke, amongst which are ensuring fair and equitable distribution of stamp duty revenue, reducing leakage of revenue to negligible amounts, ensuring smoother and standardized compliance across various states. The FAQ’s issued by the government will further clarify any issues that may have arisen post-implementation on July 1, 2020.
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