Stamp Duty on Transfer of Shares outside India – When the agreement is Executed outside India

So, when one non-resident entity (Corporate or Non-corporate, doesn’t matter!) transfer shares of an Indian Company to another another non-resident then does it require to pay Stamp Duty under the Indian Stamp Act, 1899.

When shares are transferred, liability of stamp duty payment arises in two instances :

1. Agreement entered into between both the non-residents
2. On the transfer

On the Agreement

First, Lets see what the Indian Stamp Act says about it (If you want, you can skip through this details) :

Section 3 : Instruments chargeable with Duty

Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable WIth duty of the amount indicated in that SChedule as the proper duty therefore, respectively, that is to say-

…….

(c) every instrument (other than a bill exchange or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of lndia on or after that day relates to any property situates, or to any matter or thing done or to be done, in India and is received in lndia.

Section 18 : Instruments other than bills and notes executed out of India.–

(l) Every instrument chargeable with duty executed only out of lndia and not being a bill of exchange or promissory note, may be stamped within three months after it has been first received in lndia

So basically interpreting Section 3 we can conclude that an instrument is not chargeable with duty unless both this conditions are satisfied :

• the instrument relates to any property situated or to any matter or thing done or to be done in India; and
• the instrument being received in India

Thus, even if the Instrument relates to any property situated in India but is executed outside India, Stamp Duty shall not be chargeable.

But what if the non-resident subsequently brings those documents into India (for whatever reason!) :

Then as per Section 18 such instrument shall be stamped within 3 months after it has been first received in India.

The rate at which they will be charged to duty is mentioned in

Article 5 – Agreement or Memorandum of an Agreement

(ii) If relating to the sale of a share in an incorporated company or other body corporate;

For West Bengal, it is – Rs. 0.50 for every Rs. 5,000 or part thereof of the value of the share, i.e., effectively, 0.01% of the value of the shares. If might vary from State to State!

On the Transfer

As per Section 56 of Companies Act, 2013 dealing with “Transfer & Transmission of securities”, company shall record transfer in its books and issue new share certificate only if a proper transfer deed DULY STAMPED in Form SH-4 has been delivered to it by the transferee within 60 days from the date of execution. So, its mandatory for the transferee to file the transfer deed with the company.

Stamp duty on such transfer depends on whether the shares are in Dematerialised or Physical Format :

• If Shares are held in Dematerialised Format – No stamp duty shall be levied (See Section 8A of Indian Stamp Act)
• If Shares are held in Physical Format – Stamp Duty shall be levied at 0.25% of the value of shares. (See Article 62 of the Indian Stamp Act). One thing to note is the fact that, Stamp duty on share transfer are now included in Union Legislative list in the constitution to secure uniformity of rates. So the same rate will be charged in all states, irrespective of what’s mentioned in their respective Stamp Duty Acts.