Stamp Duty Amendments on Securities Transactions: The Impact of Covid-19

[Bhavna Hemrajani is a 4th year student at Amity Law School Delhi (affiliated to Guru Gobind Singh Indraprastha University Delhi)]

The Finance Act, 2019 amended the Indian Stamp Act, 1899 to insert section 9A, which deals with ‘Instruments chargeable with duty for transactions in stock exchange and depositaries’, and section 9B, which relates to instruments ‘chargeable with duty for transactions otherwise than in stock exchange and depositaries’. Subsequently on December 10, 2019, the Ministry of Finance further amended the Indian Stamp Act, 1899 by way of a notification to introduce the Indian (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019. The said amendments were scheduled to come into effect from January 9, 2020. However, a notification dated January 8, 2020, the Government deferred the date for enforcement of the above-mentioned amendments to April 1, 2020, which marked the commencement of the new financial year. By a notification dated March 30, 2020, the Government further deferred the implementation of the amendments to July 1, 2020, on account of the nationwide lockdown due to Covid-19. In this post, the author argues against the enforcement of the new amendments that took effect on July 1, 2020, and suggests that in public interest the Government ought to have deferred the date of enforcement until the stock market recovers.  


Stamp duty is generally payable on the value of an instrument used for various transactions. According to the Constitution of India, stamp duty can be imposed by the Central and State governments, but the power to collect is solely vested with the state government that has appropriate jurisdiction. Earlier, the Indian Stamp Act exempted the transfer of securities in dematerialised form from the liability of stamp duty under section 8A of the Indian Stamp Act. However, the position changed when the Finance Act amended section 8A and inserted sections 9A and 9B in the Indian Stamp Act. Now, section 8A only exempts the transfer of registered ownership of securities from a person to a depository (i.e., conversion of physical or materialized securities to dematerialized securities) or from a depository to a beneficial owner (conversion of dematerialized securities to physical or materialized securities). Sections 9A and 9B impose the liability of stamp duty on the issue, sale and transfer of securities, regardless of the whether such transactions are delivery-based or otherwise, or whether they take place through a stock exchange and depository or otherwise.  

The purpose behind levying stamp duty was to do away with evasion of duty and rate shopping. It was observed that, as the rates of stamp duty varied in respective states, it allowed the parties to execute the instrument in the state with a lower rate of stamp duty to avoid a higher transaction cost and thereby leading to rate shopping. Further, the multiple rates applicable on the same instrument in different states caused ambiguity for parties and led to roadblocks in capital formation. The new scheme aims to ensure that the states collect stamp duty on securities market instruments and share the same appropriately based on the state of domicile of the client buying the securities. Simultaneously, it aims to reduce jobbing and arbitraging by increasing the cost of proprietary trading.   


The above-discussed amendments have symbolically caused a significant impact on the commercial transactions involving the issue, sale or transfer of securities. On one end of the spectrum, the amendments will shore up revenues for the Government and reduce the burden on both the seller and buyer to equally bear the stamp duty expense. However, it will simultaneously result in an increased cost of the transaction. It is pertinent to note that the transaction cost will increase regardless of the fact that stamp duty is applicable on the issue of securities and transfer of securities in physical form at respective rates as provided by the states in the Schedule to the Indian Stamp Act. Section 29 of the Indian Stamp Act, which prescribes the responsibility of the relevant party to bear the payment of stamp duty applicable, was also amended by the Finance Act. Now, the issue of securities on the stock exchange will attract stamp duty that shall be payable by the buyer and, if securities are issued otherwise, duty shall be paid by the seller. In case of a transfer of securities, the transferor shall be responsible for the payment of stamp duty regardless of the fact that the transfer is through a stock exchange, depositary or otherwise. Further, due to the wider scope of section 9A, the provision will encompass even those trades performed for the direct benefit of the traders or brokers, i.e., proprietary trading and not on a client’s behalf, inevitably impacting the frequency of trades taking place.    

Deferment of the Amendment

The Government has already delayed the implementation of the reforms due to adverse market conditions. Taking note of the fact that India is still yet to reach its pandemic peak and having regard to the sluggish investor sentiments, the author argues against this decision of the Government to bring the amendments in force as on July 1, 2020, as confirmed by the Ministry of Finance in a press release dated June 30, 2020.  Further, certain percentage of investors has withdrawn from the share market as a consequent to the bearish market conditions and fear of incurring further losses. Investors lack motivation and financial resources to continue investing. In such a background, the amendment has a higher probability of demoralising the investors rather than encouraging them to engage in trading. Companies such as Vendata Limited, Adani Power and Hexaware Technologies are looking at opportunities to delist from the stock exchanges. Such announcements and proposals also negatively affect the stock market and cause the price of securities to free fall. 

Concluding Remarks

The Central Government sought not to defer the enforcement of the above-mentioned amendments and, as anticipated, they came into force with effect from July 1, 2020. The amendment will ensure the presence of a uniform collection system of stamp duty resulting in low cost of collection and higher flow of revenue. But, the burden of the expense of stamp duty with considerably increase the cost in securities transactions. Only time will reveal the impact this may have on the Indian stock market.

Bhavna Hemrajani

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