The Securities and Exchange Board of India (“SEBI”) has issued a circular dated June 30, 2020 (“SEBI Circular”) regarding the collection of stamp duty on issue, transfer and sale of units of alternative investment funds (“AIFs”).
The Finance Bill, 2019 introduced certain amendments to the Indian Stamp Act, 1899 (“Indian Stamp Act”) in order to streamline the stamp duty regime for transactions in financial securities. These amendments were originally meant to come into effect on January 09, 2020. The finance ministry deferred the effective date of the aforesaid amendments to April 01, 2020 and then to July 01, 2020.
Prior to the aforesaid amendments, section 8A of the Indian Stamp Act provided that stamp duty is not payable on the transfer of beneficial ownership of securities and mutual fund units dealt with by a depository in dematerialised form. With effect from July 1, 2020, the aforesaid exemption disappeared and Section 9A(1)(a) of the Indian Stamp Act now provides that in case of sale of securities through a stock exchange, the stamp duty on each sale in the clearance list will be collected from the buyer by the stock exchange (or a clearing corporation authorised by the stock exchange) on behalf of the State Government, on the market value of such securities at the time of settlement. In case of off-market transactions made through a depository, the stamp duty will be collected from the transferor by the depository on behalf of the State Government on the consideration amount.
The applicable stamp duty shall be 0.005% of the value of the unit at the time of its issue and 0.015% of the consideration payable at the time of the transfer of the units.
The finance ministry has also notified the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 (“Rules”) to regulate the centralised mechanism for the collection of stamp duty across the country.
The Indian Government vide Gazette notification S.O.116(E) dated January 08, 2020 had notified the “Registrars to an Issue and/or Share Transfer Agents” (“RTA”) registered under the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 as a “depository” for the limited purposes of acting as a “collecting agent” under the Indian Stamp Act, 1899 and the Rules made thereunder, only in case of instruments of transaction otherwise than through a recognised stock exchange or depository. The SEBI Circular directs all AIFs to comply with the applicable provisions of the Indian Stamp Act and the Rules made thereunder regarding collection of stamp duty on sale, transfer and issue of units of AIFs with effect from July 01, 2020.
RTA already appointed by AIFs shall collect the stamp duty on the issue, transfer and sale of units of AIFs as stated above. AIFs, which have not been appointed an RTA so far, are required to appoint an RTA, at the earliest, but not later than July 15, 2020 to enable collection of applicable stamp duty on issue, transfer and sale of units of AIFs in compliance with the applicable provisions of the Indian Stamp Act, 1899 and the Rules made thereunder.
Read circular here.
This update has been contributed by Vinod Joseph (Partner) and Kshitija Naik (Associate).
7A, 7th Floor, Tower C, Max House,
Okhla Industrial Area, Phase 3,
New Delhi – 110020
The rules of the Bar Council of India do not permit advocates to solicit work or advertise in any manner. This website has been created only for informational purposes and is not intended to constitute solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work in any manner. By clicking on 'Agree' below, you acknowledge and confirm the following:
a) there has been no solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work through this website;
b) you are desirous of obtaining further information about us on your own accord and for your use;
c) no information or material provided on this website is to be construed as a legal opinion and use of this website will not create any lawyer-client relationship;
d) while reasonable care has been taken in ensuring the accuracy of the contents of the website, Argus Partners shall not be responsible for the results of any actions taken on the basis of information provided in this website or for any error or omission in the website; and
e) in cases where the user has any legal issues, the user must seek independent legal advice.