Stamp duty on stock market transactions

Maharashtra model – a study by V. Srinivasulu, DIG, Registration, Hyderabad.Mumbai Stamp Office and BSE visits

Dt 12th and 13th Feb 2014

Central Government power to fix stamp duty on certain instruments Bills of exchange

Cheques

Promissory notes

Bills of lading

Letters of credit

Policies of insurance

Transfer of shares and debentures (schedule I Art 62)

Proxies

Receipts

Entry 96 of List I of VII schedule of Constitution of India

Present entry (Art 62) IS Act 1899 Schedule I 62. Transfer (whether with or without consideration)--

(a) Of shares in an incorporated company or other body corporate;

Twenty-five paise for every hundred rupees or part thereof of the value of the share;

(b) Of debentures, being marketable securities whether the debenture is liable to duty or not except debentures provided for by Section 8;

One-half of the duty payable on a Conveyance (No.23) for a consideration equal to the face amount of the debenture.

Sec 8-A. Securities dealt in depository not liable to stamp duty:-- (a) an issuer, by the issue of securities to one or more depositories shall, in

respect of such issue, be chargeable with duty on the total amount of security issued by it and such securities need not be stamped;

(b) where an issuer issues certificate of security under sub-section (3) of Section 14 of the Depositories Act, 1996 on such certificate duty shall be payable as is payable on the issue of duplicate certificate under this Act.

(c) the transfer of –

(i) registered ownership of securities from a person to a depository or from a depository to a beneficial owner;

(ii) beneficial ownership of securities, dealt with by a depository;

(iii) beneficial ownership of units, such units of a Mutual Fund including units of the Unit Trust of India established under sub-section (1) of Section 3 of the Unit Trust of India Act, 1963, dealt with by a depository.

shall not be liable to duty under this Act or any other law for the time being in force.

* Sec 8A substituted by S.118 of Finance Act, 2000 (Act No.10 of 2000) assented on 12th May 2000, which was originally inserted by Act 22 of 1996.

Fallout of section 8-A insertion There is no stamp duty on the transfer of ownership

of securities happened through depositories that means demat securities.

The states lost considerable revenue.

Maharashtra being the financial hub had to lose heavily.

What Maharashtra has done? It has inserted Art 51A to its schedule to taxRecord of Transaction (Electronics or otherwise) effected by a trading member through a stock exchange or the association referred to in Section 10B--

(a) If relating to sale and purchase of Government securities

0.005 percent of the value of security

(b) If relating to purchase or sale of securities, other than those falling under item (a) above, --

(i) in case of delivery 0.005 percent of the value of security

(ii) in case of non-delivery 0.005 percent of the value of security

(c) If relating to futures and options trading

0.005 percent of the value of the futures and options trading.

(d) If relating to forward contracts of commodities traded through an association or otherwise.

0.005 percent of the value of the forward contract

Explanation -- for the purpose of clause )b), “Securities” means the securities as defined in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956.

Issues relating to the State legislature’s competency to prescribe duties falling under the Parliament jurisdiction

Whether it is a colourable legislation defeating the amendment to the Indian Stamp Act, 1899 – things cannot be done directly; cannot be done indirectly.

Cases pending before the Mumbai High Court

Yet to know the pulse of judiciary

Nobody to tell the latest stage of the cases

Indian Stamp Act, 1899 amendments proposed by the GoI

How the Stamp Duty being collected? Engaging the services of Bank of India Shareholding

Ltd to collect the stamp duty from the brokers

Entered into an agreement

Stamp duty on clearance list (Article 19-23)

Clause 3 of the agreement says clearance list/record of transactions; but not made it clear on which they are collecting

According to officials of Stamp Office, Mumbai and BOISL, the stamp duty being collected on Record of Transactions

Stamp Duty of about Rs.500 crores is collected per annum on the record of transactions

Salient features of the agreement BOISL permits the Clearing Members to deposit the

amount of stamp duty payable by them on the Clearance List in the designated bank account of the Clearing Member before 10th of every month

Govt of Maharashtra pays 0.50% ad-volarem on the amount of stamp duty collected by BOISL

Maharashtra stamp law – relevant articles Articles - DIG..xlsx

Tamil Nadu – Stamp Duty collection under Article 5 of Schedule I IG, Tamil Nadu clarified to the BSE, NSE, MCDEX, NCDEX that as

per Article 5 (c) of the Schedule I (as applicable to the State), the stamp duty is payable on the purchase or sale of shares, scripts, stocks, bonds, debenture stocks or any other marketable security of like nature even though they are maintained in electronic form as per the General Clauses Act, 1897 and Information Technology Act, they fall within the definition of the document.

Subsequent to the above, Tamil Nadu has engaged the services of BOISL, Mumbai to collect the stamp duty pertaining to their State by executing the agreement on the lines of Maharashtra.

The agreement is almost identical to the Maharashtra agreement – they mentioned regarding taxing the clearance list (even though it is absent in the Schedule I as applicable to the State)

Collection charges – upto Rs.300 crores – 0.40% ; above Rs.400 crores – 0.50%; If less than Rs.100 crores – 0.50%

Karnataka – Stamp Duty collected under Article 37 - Note or Memorandum Art.37 to schedule of Karnataka Stamp Act has

been amended explicitly covering the record of transactions (electronic or otherwise)

Karnataka is collecting about Rs.600 crores per annum

Karnataka has constituted a special cell under the charge of a Retired IAS Officer (previously IG Registration) for effective collection from the stock and commodity market under this Article

Clearance List (Article 18A) is also made chargeable, while exempting under Art 37 the stamp duty paid under Article 18A

What we can do? Immediately: without amending articles or law

A clarification can be sent to all the stock, derivative and commodity exchanges stating that stamp duty on the note or memorandum mentioned under Article 38 of Schedule IA to Indian Stamp Act, 1899 as applicable to the State of AP requires to be collected from the brokers/agents even though the communication is in electronic form since General Clauses Act and IT Act treat them as documents (instruments).

Applicable stamp duty -- 0.50 ps/Rs.10000 or part thereof subject to a maximum of Rs.50/-.

This Article covers any stock or marketable security exceeding in value twenty rupees; therefore, it squarely covers all the derivative and commodity markets in its sphere

Whereas under Article 5 we have limitation as it covers only government security or share in an incorporated company or other body corporate. (Tamil Nadu State has amended this Article suitably to cover all the transactions)

BOISL may be engaged to collect the stamp duty on behalf of the State

What we can do?Amendments to the Stamp Act and its schedule:

Insertion of an entry “record of transactions” on the lines of Maharashtra

Insertion of a Section in the Stamp Act fixing responsibility on Stock Exchange or an Association for collection of Stamp Duty on record of transactions on the lines of State of Maharashtra (Section 10B) (TDS)

Provision exempting stamp duty under other articles concerning the subject, if stamp duty is paid on the record of transactions

We must ensure that there is no arbitrage opportunity to the parties to pay the stamp duty in a State where the duty is less than us

Turnovers of brokers of AP for the month of Jan 2014 available with BSEStock Exchange

Segment Turnover (crores)

BSE CASH 01613

BSE DERIVATIVES 00652

BSE WDM 02259

MCX COMMODITY 17294

NCDEX COMMODITY 02740

NSE CASH 17716

NSE DERIVATIVES 79662

NSE WDM 05569

GRAND TOTAL 127507NOTE: THERE IS A POSSIBILITY THAT SOME TRANSACTIONS PERTAINING TO THE CLIENTS LOCATED OUTSIDE AP.IF CONSIDER EDTHAT EACH TRANSACTION VALUE IS LESS THAN RS 10 LAKH, THE STAMP DUTY PAYABLE ON THE TURNOVER IS Rs.6.37 crores if charged under Art 38 (b) of Schedule IA (AP)

Other commercial instruments – scope for substantial revenue generation Companies merger/amalgamation: Conveyance

if relating to the order of High Court in respect of the amalgamation or reconstruction of companies under Section 394 of Companies Act, 1956 or under the order of the Reserve Bank of India under Section 44A of the Banking Regulation Act, 1949 (Article 25 (da) of Maharashtra Stamp Act)– is fetching about Rs.600 crores per annum – we may have to amend our law on the lines of Maharashtra.

Bombay High Court while passing the orders under S 394 of Companies Act directing the parties to get it stamped under stamp law within 60 days – we may have to request the AP High Court to do the same.

Commercial instruments - contd Delivery Order in respect of goods – In AP we

have a fixed duty of Rs.10/- where as in Maharashtra, it is advolarem (Art 29) – Ten rupees for every Rs.10000/- or part thereof – From Ports and Airports operations, they are collecting about Rs.500 crores per annum

The ports in the State are handling more than 200 MT cargo/annum. The imports/exports through RGIA is also considerable, if we amend the stamp law on the lines of Maharashtra, we may get about Rs.250 crores per annum

We may have to review the IS Act as far as optional registrable documents are concerned with a view to examine revenue potential

Constitution of a committee and nodal officers A committee may be constituted to review all the

articles keeping in view the changes made by the States like Maharashtra, Karnataka, Tamil Nadu.

DR Hyderabad, Hyderabad (South), Ranga Reddy DRs may be appointed as nodal officers to get the information from RoC, AP High Court, Stock Market, Ports and Airports.