Stamp duty is a tax on the transfer of ownership or rights in property, such as land, buildings, vehicles, securities, etc. Stamp duty is payable by the buyer or the transferee of the property, based on the value or consideration of the transaction.
One of the types of property that is subject to stamp duty is shares, which are units of ownership in a company. Shares can be issued or transferred in two forms: physical or demat. Physical shares are paper certificates that bear the name and details of the shareholder and the company. Demat shares are electronic records that are held in a dematerialized account with a depository.
In this blog post, we will discuss how to pay stamp duty on share transfers and share certificates in India. We will cover the following aspects:
- The rates and mechanism of stamp duty on share transfers and share certificates .
- The benefits and challenges of stamp duty on shares.
- The procedure and the compliance requirements for paying stamp duty on shares.
The Rates and the Mechanism of Stamp Duty on Share Transfer and on Share Certificates
The rates and the mechanism of stamp duty on share transfers and on share certificates depend on whether the shares are in physical or demat form. The rates and the mechanism of stamp duty on shares are as follows:
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Share Certificate: A share certificate is a document that evidences the ownership of shares in a company. A share certificate is issued by the company to the shareholder when the shares are allotted or transferred to the shareholder.
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Physical Share Certificate: A physical share certificate is stamped or franked with 0.005% of the value or the consideration of the shares, whichever is higher. The stamp duty is paid by the shareholder at the time of the issue or transfer of the share certificate. The stamp duty is paid in the existing manner as prescribed by the respective state governments.
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Demat Share Certificate: A demat share certificate is an electronic record that is maintained by the depository in the dematerialized account of the shareholder. A demat share certificate is issued by the depository to the shareholder when the shares are credited or debited to the dematerialized account of the shareholder.
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The stamp duty on the demat share certificate is 0.005% of the value or the consideration of the shares, whichever is higher. The stamp duty is paid by the shareholder at the time of credit or debit of the shares to the dematerialized account of the shareholder. The stamp duty is collected by the depository on behalf of the state government and remitted to the accounts of the respective state governments.
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Share Transfer: A share transfer is a transaction that involves the change of ownership or rights in shares from one person to another. A share transfer can be done by way of sale, gift, inheritance, transmission, etc. A share transfer is effected by executing a share transfer deed or a share transfer form, which contains the name and details of the transferor and the transferee, the name and details of the company, the number and class of shares, the value or consideration of the shares, the date of transfer, etc.
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Physical Share Transfer: A physical share transfer is a transaction that involves the transfer of physical share certificates from one person to another. A physical share transfer is effected by executing a share transfer deed or a share transfer form in Form No. SH-4, which is stamped or franked with 0.015% of the value or the consideration of the shares, whichever is higher. The stamp duty is paid by the transferee at the time of the transfer of the share certificates. The stamp duty is paid in the existing manner as prescribed by the respective state governments.
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Demat Share Transfer: A demat share transfer is a transaction that involves the transfer of demat share certificates from one person to another. A Demat share transfer is effected by executing a share transfer instruction or a share transfer form, which is sent to the depository participant, who in turn sends it to the depository. The depository then debits the shares from the dematerialized account of the transferor and credits them to the dematerialized account of the transferee.
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The stamp duty on demat share transfers is 0.015% of the value or the consideration of the shares, whichever is higher. The stamp duty is paid by the transferee at the time of debiting or crediting the shares to the dematerialized account of the transferor or the transferee. The stamp duty is collected by the stock exchange or the clearing corporation on behalf of the state government and remitted to the accounts of the respective state governments.
The Benefits and the Challenges of Stamp Duty on Shares
The payment of stamp duty on share transfers and on share certificates has several benefits and challenges for the shareholders and the companies.
Some of the benefits are:
- It ensures that the government gets a steady source of revenue from the transactions involving shares.
- It provides legal and valid proof of ownership or rights in shares.
- It helps in preventing fraud and forgery of share certificates or share transfers.
- It helps in resolving disputes and claims related to shares.
- It helps in maintaining the records and the registers of shares.
Some of the challenges are:
- It involves a lot of paperwork and documentation for the shareholders and the companies.
- It requires a lot of coordination and communication between the shareholders, the companies, the depositories, the depository participants, the stock exchanges, the clearing corporations, and the state governments.
- It imposes a lot of responsibility and liability on the shareholders and the companies for paying and collecting the stamp duty correctly and timely.
- It exposes the shareholders and the companies to the risk of errors, defaults, penalties, and notices from the state governments or the Income Tax Department.
The Procedure and the Compliance Requirements for Paying Stamp Duty on Shares
The procedure and the compliance requirements for paying stamp duty on share transfers and on share certificates are as follows:
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Obtaining and Verifying the PAN: The shareholder and the company have to obtain and verify the PAN of the other party before issuing or transferring the share certificate. The PAN of the other party has to be mentioned in the share certificate, share transfer deed, or form. If the other party does not furnish the PAN or furnishes an incorrect PAN, the stamp duty has to be paid at the rate of 0.1% of the value or the consideration of the shares, whichever is higher, under Section 206AA of the Income Tax Act, 1961.
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Paying the Stamp Duty: The shareholder and the company have to pay the stamp duty on the share certificate or the share transfer within the prescribed time limit and manner. The time limit and manner for paying the stamp duty depend on whether the shares are in physical or demat form.
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Filing the Returns and Reports: The shareholder and the company have to file the returns and reports related to the stamp duty on the share certificate or the share transfer within the prescribed time limit and manner. The time limit and manner for filing the returns and reports depend on whether the shares are in physical or demat form.
We hope this blog post has helped you understand how to pay stamp duty on share transfers and on share certificates in India.
