Stamp Duty on Share Certificates: Rates, Process & Compliance
Issuing a share certificate is an important part to manage the stability of n company business, equity and growth. Whether you are a startup or an established business, understanding the concept of stamp duty and its applicability on share certificates is essential. Non-compliance may lead to penalties and legal complexities.
This blog explains everything about stamp duty on share certificates in Indiaโits rates, process, and compliance requirementsโin a simple and clear way.
What is a Share Certificate?
A share certificate is a legally drafted document that proves the ownership of shares in a company. It is issued by the company to its shareholders and contains details such as:
- Name of the shareholder
- Number and type of shares held
- Date of issue
- Company seal and authorized signatures
According to the Act of Companies, 2013, companies must issue share certificates within 2 months from the date of allotment of shares.
What is Stamp Duty on Share Certificates?
Stamp duty is a tax imposed by the government on legal documents. In the case of share certificates, it is charged when:
- New shares are allotted
- Share certificates are issued or transferred
- Physical certificates are executed
The stamp duty must be paid before or at the time of issuing the certificate to make it legally valid.
Legal Basis for Stamp Duty
The applicable stamp duty is governed by:
- The Indian Stamp Act, 1899
- Amendments by the Finance Act, 2020
- The Companies Act, 2013
- State-specific Stamp Acts (for physical certificates)
The duty is now uniform across all states for electronic shares, but physical certificates may still be governed by state-specific rates.
Stamp Duty Rates on Share Certificates
Let's break this into two categories:
1. For Issue of Share Certificates
| Type | Mode | Stamp Duty Rate |
Issue of share certificate | Physical | โน1 per โน1,000 or part thereof |
Issue of share certificate | Demat / Electronic | โน1 per โน1,000 or part thereof (uniform rate) |
Example: if a company issue shares worth โน5,00,000, the stamp duty will be:
โน5,00,000 รท 1,000 ร โน1 = โน500
2. For Transfer of Shares
| Mode of Transfer | Stamp Duty Rate |
Transfer in physical form | 0.25% on the consideration amount |
Transfer in demat form | No stamp duty (since Jan 2000) |
Example: If 1,000 shares are transferred for โน1,00,000, stamp duty =
0.25% of โน1,00,000 = โน250
How to Pay Stamp Duty?
The process for paying stamp duty depends on the form of the share certificate:
1. Physical Share Certificates
- Stamp duty can be paid by affixing adhesive stamps, using franking machines, or purchasing pre-stamped papers.
- Some states require e-stamping (e.g., Maharashtra, Karnataka, Delhi).
Tip: Check your state-specific stamp office rules for accurate compliance.
2. Electronic (Demat) Certificates
- Stamp duty is collected centrally via depositories like NSDL/CDSL.
- Payment is automated and deducted by the depository participant (DP) during the transaction.
- No need for physical intervention.
What is the Process to Issue Share Certificates with Stamp Duty?
Here's a simple step-by-step guide:
Step 1: Allotment of Shares
Once shares are allotted by the board, record the details in the share allotment register.
Step 2: Prepare Share Certificates
Mention shareholder name, share quantity, folio number, date, company name, and authorized signatories.
Step 3: Calculate Stamp Duty
Use the correct amount of stamp duty rate to calculate the payable amount. Remember, it's โน1 per โน1,000 or part for issuance.
Step 4: Pay Stamp Duty
- For physical, pay via franking, adhesive stamps, or e-stamping.
- For electronic, depository handles this automatically.
Step 5: Sign and Deliver
Sign the certificates (by at least 2 directors and company secretary, if applicable) and deliver them within 2 months of allotment.
Compliance and Penalties
Failing to pay proper stamp duty can lead to:
- The certificate being considered invalid in legal proceedings
- Penalty of up to 10 times the deficient duty
- Issues during audits or future share transfers
- Non-compliance with the Companies Act, 2013
Ensure you maintain proper records of all stamp duty payments and certificate issuances.
Recent Developments in Stamp Duty Law (Post-2020)
The Finance Act, 2020 brought major changes:
- Stamp duty on securities is now collected centrally by stock exchanges, clearing corporations, and depositories.
- Ensures uniformity in stamp duty across all states for electronic securities.
- Prevents double taxation in cases of multiple transactions.
This has made the process simpler for companies and investors dealing in dematerialized shares.
Documents Required for Issuing Share Certificates
To issue share certificates and comply with stamp duty laws, companies must prepare:
- Board resolution for allotment
- Register of members/shareholders
- Draft share certificate format
- Stamp duty payment proof (for physical mode)
- List of allottees
- Proof of identity/address of shareholders (KYC)
Important Points to Remember
- Stamp duty is mandatory, even for bonus shares or rights issues.
- Must be paid before certificate execution.
- Demat shares = centralized payment, Physical = state-specific rules.
- Delayed issue of certificates can lead to legal issues.
- Maintain company registers and records as per ROC (Registrar of Companies) norms.
Read More: Trust Registration- Process, Benefits, Documents and More |
Conclusion
To understand and comply with stamp duty on share certificates is essential for businesses issuing or transferring of shares. With the help of digitization and legal reforms, the process is becoming easier and smooth, especially for demat shares. Still, companies must stay vigilant and updated about rates, payment timelines and documentation to ensure smooth and legal operations.
If you're unsure, always consult a legal or tax advisor (CRSPL Business Consultants) to guide you on the correct procedures as per your state laws and business structure.
Frequently Asked Questions (FAQs)
1. Is stamp duty applicable on bonus shares?
Yes, stamp duty is applicable even on bonus shares issued through physical share certificates.
2. What happens if I don't pay stamp duty on share certificates?
Non-payment can make the certificate invalid and attract heavy penalties under the Indian Stamp Act.
3. Is stamp duty applicable on digital shares or only on physical ones?
Yes, it is applicable on both. For digital shares, it is collected centrally through depositories like NSDL and CDSL.
4. Can stamp duty be paid online for physical share certificates?
Yes, some states like Maharashtra and Karnataka allow e-stamping through SHCIL or state government portals.
5. Who is responsible for stamp duty paymentโthe company or shareholder?
In the case of issuance, the company pays. In the case of transfer, the buyer (transferee) usually pays.
