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The Nuances Of Stamp Duty On Issuance Of Share Certificate

Shares and share Certificate

The capital of a company is divided into units of small denominations and these units is known as 'Share'. According to sec 2(84) of the companies Act 2013 "share means share in the share capital of a company and includes stock". When companies issue shares, the purchasing shareholders are issued a share certificate.

A share certificate is a signed written legal document issued by a company to all its shareholders reflecting their ownership of the number of shares in the company. These certificates are the proof of legal agreement between company and shareholders. The company issues share certificates to all its shareholders for the first time immediately after incorporation and then subsequently when the new shares are allotted.

As per companies act 2013, it is mandatory for a company to issue shares certificate`s within two months from the date of incorporation. When additional shares are allocated to new or existing shareholders, share certificates must be issued within two months from the date of allocation.

Stamp Duty

Subsequent to the issuance of a share certificates, Stamp duty also has to be paid at the time of incorporation, and afterward on every subsequent shares allotment. As per the Indian Stamp Act, if the event is the date of issue of share certificate then the time period is within 30 days. Stamp duty is a duty levied on the legal recognition to pay amount of tax on certain documents/instruments.

As per section 3 of the Indian Stamp Act, 1899 every instrument mentioned in the schedule is chargeable with the proper duty. Share certificate being an instrument requires stamping and delay in payment of stamp duty appeals penalty.

The Essence of Stamp Duty

Stamp duty, enshrined in the Indian Stamp Act, 1899, stands as a revenue-generating mechanism for the government. It is a tax levied on instruments that confer legal rights or obligations, with share certificates falling under this purview. The rationale behind stamp duty lies in recognizing and validating the legality of these instruments, thereby safeguarding transactions and upholding the sanctity of contractual agreements.

Evolution of Stamp Duty on Share Issuance

The landscape of stamp duty on share issuance has undergone significant transformations over time. Prior to 2020, stamp duty rates varied across states, leading to inconsistencies and complexities for companies operating across jurisdictions. However, a landmark amendment in 2019 introduced a uniform stamp duty regime, streamlining the process and fostering ease of doing business.

Under the unified stamp duty regime, the rate for issuing share certificates stands at 0.005% of the market value of the shares. This applies to both physical and dematerialized shares, effectively eliminating the previous differential between the two modes. As per the latest amendment in the Companies Act, 2013, even the unlisted public companies shall require to hold and transfer its securities in dematerialized form only (Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014)

However, earlier there were no such provisions prescribed for private companies but, now the Ministry of Corporate Affairs has also mandated the issuance of securities exclusively in dematerialized form by private companies, excluding small companies, along with the facilitation of the dematerialization process for all existing securities. In the instance of dematerialized shares, the duty is borne by the depositor, while for physical shares, the issuer assumes responsibility.

Procedure to pay stamp duty:

Stamp duty on share certificate is State subject, so it is very stated to state. One can pay through the portal of the Stock Holding Corporation of India Limited (SHCIL) for physical shares in states like Delhi and Mumbai, and through the respective state government's portal for other states like Egras in Rajasthan.

A consequence of non-payment of Stamp duty

In case of non-payment of stamp duty or evasion of payment of stamp duty on the issue of share certificate in case of allotment of share within the time limit of 30 days then, the company shall be liable for heavy penalty under the Act, which may extend to 10 times of the duty.

Award Winning Article Is Written By: Ms.Chunauti Gupta
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