Stamp duty on transfer of shares

So, you’re diving into the world of shares and stock trading, and suddenly someone mentions stamp duty on transfer of shares. If you’re scratching your head wondering, “What is stamp duty on shares?” or “Why do I even need to pay for a stamp in 2025?” Don’t worry, you’re in the right place.

Let’s break down what is stamp duty on issue of shares, why it exists, who pays it, and how it applies in today’s demat-driven world.

What is Stamp Duty on Shares?

At its core, stamp duty is a tax levied on legal documents; think of it as a fee for officially recognizing your transaction. When it comes to shares, this means you pay a small percentage whenever there’s:

• A transfer of shares (e.g., you sell your shares to someone else)
• A stock transfer (think moving shares from one demat to another)
• Or even the issue of shares (like when companies release new shares during IPOs or rights issues)

Here are the primary terms investors often stumble upon:

Why stamp duty is collected:

The main objective of the Stamp Act, 1899, is to raise revenue for the government. Instruments that are duly stamped as per Schedule-1 are admissible as evidence in a court of law. For this reason, documents stamped appropriately assume significance.

Field of legislation:

Vide 91 of the Union List, the central government is empowered to collect stamp duty on certain instruments namely, bills of exchange, promissory notes, transfer forms for transfer of shares, debentures, bills of lading, proxies, letters of credit, and receipts. State governments do not have the power to enact any laws for payment of stamp duty in respect to these instruments. Each state will prescribe a stamp duty on instruments that fall within its list (State List) and are reflected in Schedule-1A of the Stamp Act.

How stamp duty is calculated:

Identify which category the instrument or document falls under 3 categories:

• Stamp duty remains fixed irrespective of the value of transaction or goods/property mentioned in the instrument. For e.g., article of clerkship, copy of extracts etc.
• Stamp duty charges are entirely dependent on the value of the transaction mentioned in the document. For e.g., mortgage deed, security bond, etc.
• Stamp duty charges depend either on the value of the transaction mentioned in the document or on the true market value. For e.g., trust deed, partnership deed, etc.

Look up the rates provided in the Indian Stamp Act,1899,

Section 21 of the Indian Stamp Act of 1899 states that where an instrument is chargeable with ad valorem duty in respect of any stock or of any marketable or other security, such duty must be calculated on the value of such stock or security according to the average price of the value thereof on the date of instrument. The relevant Article in Schedule-1 is #62 which reads as under:

In the case of a transfer from a trustee to a beneficiary, or from a trustee to another trustee, a concessional stamp duty is payable, unlike in normal transfers. Similarly, when a bank holds shares as security and gets them transferred in its name, a special concessional stamp duty is payable.

How stamp duty is payable:

Non-judicial stamp papers are generally used for execution of legal documents such as sale deed, lease deed, etc. In some cases, adhesive stamps are used; for e.g., notarial acts, share transfer stamps. After the Telgi scam, franking of the value of the stamp on the instrument has come into usage. Having addressed the above basic framework on levy of stamp duty, let us now focus on the topic of stamp duty on transfer of shares.

Who is Liable to Pay Duty on The Transfer of Shares?

Legally speaking, Section 29 of the Indian Stamp Act mentions that if there’s no agreement stating otherwise, the person executing the document (usually the seller) must pay the duty.

According to real case law, in Union of India vs. Kulu Valley Transport Ltd. (1958), it was held that the seller is responsible for stamp duty on transfer of shares. Similarly, the Mrs. GR Parry vs. Union of India (1962) case also reiterated that just because the buyer signs the document doesn’t mean they bear the cost.
But, many times, the buyer (transferee) ends up affixing the stamp duty during demat transfers, just to keep things moving quickly. So, while the law points to the seller, the practice often shifts the burden to the buyer. Some companies even go the extra mile and help fix the deficit duty as a service.

When is stamp duty payable?

According to Section 17 of the Stamp Act, stamp duty must be paid or stamps should be affixed before or at the time of execution of the transfer deed. Section 108 of the Companies Act, 1956, mentions no company shall register for a transfer of shares unless a proper instrument of transfer, duly stamped and executed by or on behalf of the transferor and the transferee, has been delivered to the company.

What does duly executed mean?

According to Section 2(12) of the Stamp Act, executed means signed. Therefore, execution includes the signatures of all persons who are required to sign the instrument of transfer namely — transferor and transferee. To be a called a duly executed transfer deed, besides the signatures of the transferor and transferee on the prescribed form with date of presentation, other requirements such as particulars of the transferee, attestation by witnesses, date of execution, and payment of stamp duty must be complied with.

Cost Factor for Determining Stamp Duty

Now that we know who pays, let’s talk about how much you pay. Here are the key cost factors that influence the stamp duty of share transfer:

• Type of transaction – Is it a transfer, issue, or off-market deal?
• Mode of transaction – Physical shares vs. demat format
• Value of consideration – The transaction amount (not face value)
• Location of transaction – State-wise stamp duty may vary in certain cases
• Instrument type – Shares, debentures, mutual fund units, etc.

Important tip: Always double-check the rates with your broker or depository participant (like NSDL or CDSL). Rates may get updated by SEBI or state governments.

Stamp Duty on Demat Share Transfers

Let’s now talk about how stamp duty on transfer of shares works in today’s modern, online world of demat accounts. Back in the day, physical share certificates were all the rage. Today, it’s all digital. And while things have become easier, stamp duty on stock transfer hasn’t gone away. So, how does it work now?

• As per SEBI guidelines, the depositories (NSDL/CDSL) collect stamp duty on your behalf.
• Duty is charged on the market value of shares.
• It applies only to the ‘buy’ side in the secondary market.
• No stamp duty for off-market transfers between relatives (subject to conditions).

So if you’re buying ₹1,00,000 worth of shares in a demat format, your stamp duty on share transfer would be just ₹15.

Conclusion

Physical transfer of shares has lost significance in this age of electronic transfers through depositories. However, one must remember that it would be very risky if the shares are registered even when the instrument of transfer is not duly stamped. Still, many companies shares are in the physical form although SEBI has mandated them to make them demat. Hence, one cannot ignore the importance of checking and ensuring that proper stamp duty is affixed or franked to avoid being caught for the wrong reasons.