Stamp duty on increase in piad up share capital

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Querist : Anonymous

Querist : Anonymous (Querist)

03 January 2013 Can anyone tell me the accounting for payment of stamp duty to MCA for increase in paid up share capital.

CA. Sunil Kumar

CA. Sunil Kumar (Expert)
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03 January 2013
The entry for ROC fees as follows:-

Rate & Taxes A/c Dr

To Cash/Bank A/c

CA. Sunil Kumar

CA. Sunil Kumar (Expert)
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03 January 2013 Following entry to be pass

Rate & Taxes A/c Dr.

To Cash/Bank A/c

Querist : Anonymous

Querist : Anonymous (Querist)

03 January 2013 i am asking that whether charged to p&l directly or as a miscellaneous assets and w/o it in future years
Also tell me treatment in case of stamp duty on increase of authorized capital as the amount was in lacs.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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25 July 2025 Great question — you're asking about the **accounting treatment** of **stamp duty paid to MCA** for:

1. Increase in **paid-up share capital**, and
2. Increase in **authorised share capital** (where the duty paid is substantial, in lakhs).

Let’s break it down clearly.

---

### ✅ 1. **Stamp Duty on Increase in Paid-Up Share Capital**

This usually occurs **during share allotment** (not just increase in authorized capital). The **stamp duty** is typically payable on **issue of share certificates**.

#### 🧾 **Accounting Treatment**:

* **Debit**: ***Share Issue Expenses / Preliminary Expenses** (Asset Account or Deferred Revenue Expense)*
* **Credit**: ***Bank***

Example:

```plaintext
Share Issue Expenses A/c Dr. ₹X
To Bank A/c ₹X
```

Then, amortize it over a few years (commonly 3–5 years), or expense it off in the year of issue, based on materiality.

✅ **Note**: If immaterial, you can debit directly to **Profit & Loss A/c**.

---

### ✅ 2. **Stamp Duty on Increase in Authorised Share Capital**

This is payable to the **MCA while filing Form SH-7**, and **does NOT create any tangible asset**. It is incurred **for enhancing the company’s capital raising capacity**, so it’s a **capital expense** but doesn’t qualify for capitalization under AS/Ind AS.

#### 🧾 **Accounting Treatment Options**:

* Common practice: treat it as **Preliminary/Deferred Revenue Expense** and **amortize** over 3–5 years.
* **Alternative treatment**: directly expense it to **P\&L** if the amount is not material.

Example:

```plaintext
Deferred Revenue Expenditure A/c Dr. ₹X
To Bank A/c ₹X
```

Then every year:

```plaintext
P&L A/c Dr. ₹(X/5)
To Deferred Revenue Expenditure A/c ₹(X/5)
```

✅ **Important**: It **cannot be capitalized to share capital or securities premium** as per accounting standards.

---

### 📌 Income Tax Angle:

* **Stamp duty on increase of authorized capital is not allowed as a deduction under Section 37(1)** of the Income Tax Act. (Refer: *Brooke Bond India Ltd v. CIT \[1997]*)
* However, **stamp duty on share certificate issue** (paid for raising actual capital) may be allowed in some cases as share issue expense (Section 35D or 37, depending on the situation).

---

### 📝 Summary Table:

| Stamp Duty Type | Accounted As | Can Be Deferred? | Tax Deductible? |
| ------------------------------------ | ------------------------------------ | ---------------- | ----------------------- |
| On Increase in Paid-Up Share Capital | Share Issue/Preliminary Expenses | Yes | Possibly (depends) |
| On Increase in Authorised Capital | Preliminary/Deferred Revenue Expense | Yes | ❌ No (as per SC ruling) |

---

If your stamp duty was "in lacs", the better treatment is to **capitalize as Deferred Revenue Expense** and **amortize over 3–5 years** in your books — this is conservative and acceptable under GAAP.

Would you like a sample journal entry or note for your financial statements as well?

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