Stamp duty is a small line in a deal budget, but it is a legal condition for the document to be used as evidence. For a foreign investor subscribing to or buying shares in an Indian company, the rules are simple in principle and sometimes confusing in practice.
The national rate card
Following the amendments to the Indian Stamp Act, 1899 that took effect in July 2020, stamp duty on securities is collected through the depository and exchange system for listed and demat shares. For shares issued, the duty is a small percentage of the value, and for transfers it is a different percentage. The exact rates, and the rules for shares in physical form, should be confirmed against the current law.
State laws still matter
Many documents in a transaction, such as the share purchase agreement, shareholders' agreement or loan agreement, are charged under state stamp laws, and rates differ from state to state. The state of execution, and sometimes the state where the property or company is located, decides which law applies.
Common points
- Pay duty before or within the period allowed after execution. Late payment leads to penalties that can be a multiple of the duty.
- An agreement signed abroad is liable to duty when brought into India, within the time allowed.
- An unstamped or under-stamped document may not be admitted in evidence until the duty and penalty are paid.
- Bundle documents carefully, since a composite document can attract duty on each part.
Practical advice
Include stamp duty in the closing checklist, confirm the correct state and rate in advance, and have a local adviser check the stamping of each document before it is relied on in a dispute.
The author is an M.Com., FCS, LL.B., Partner, A2 Consultants, Hyderabad. The views are personal and for general information only.
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