| Reference Date | Version | February 24, 2024| 1.0 |
| Keywords | Stamp duty, electronic signature, currency, penalty, digitization |
| Legislation(s) |
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| Jurisdiction | India |
Introduction
Stamp duty is a tax levied on instruments, bills of exchange, and promissory notes, whether executed in India or outside India, concerning a matter done or to be done in India.
Presently, the law relating to stamp duty is outlined in the Indian Stamp Act, 1899 (pre-Constitution legislation), read with State Amendments. The levy and collection of stamp duty are by the provisions of Article 268 and the Seventh Schedule of the Constitution of India, 1950 (‘Constitution of India’). Said Article 268 specifies that stamp duties would be collected on behalf of the Government of India by the States within which such duty is leviable, and in the case of Union Territories, would be collected by the Government of India.
The power to levy stamp duty flows from the said Seventh Schedule, which provides three separate lists – List I (Union List), List II (State List) and List III (Concurrent List) specifying the matters in respect of which the Parliament or the State Legislature (or both) have the power to make laws.
List I Entry 91 vests the Parliament with the power to specify the rates of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. List II Entry 63 vests the State Legislature with the power to specify stamp duty rates concerning documents other than those specified in the provisions of List I about rates of stamp duty. List III Entry 44 vests both the Parliament and State Legislature to specify stamp duties other than duties or fees collected through judicial stamps, but not including stamp duty rates.
Much has changed concerning the nature of transactions and how transactions are executed since 1899. Various states have introduced amendments via State Amendments in response to the changing business scenario. Still, amendments to the Central Legislation, i.e., the Indian Stamp Act, 1899 (‘Stamp Act’), have been wanted. Thus, there is a need to amend the Stamp Act. On January 17, 2024, the Ministry of Finance, Department of Revenue, prepared and proposed a draft ‘Indian Stamp Bill 2023’ (‘Stamp Bill’), inviting comments from other ministries and the general public. The proposal is to repeal the Stamp Act and enact new legislation that reflects the present realities and objectives. This article aims to highlight the key proposals in the Indian Stamp Bill 2023 and understand the implications thereof.
Key Proposals under the Stamp Bill
Digitisation
- Electronic signature permitted as a mode of execution of instrument(s)
Under the Stamp Act, all instruments chargeable with duty and executed by any person in India must be stamped before or at the time of execution.
Presently, as defined, the terms “executed” and “execution” used with reference to instruments mean “signed” and “signature” and include attribution of electronic records within the meaning of Section 11 of the Information Technology Act, 2000 (‘IT Act’).
Section 11 of the IT Act sets forth the scenarios where an electronic record shall be attributed to the originator of such electronic record without any express reference to ‘electronic signature’.
The Stamp Bill proposes to expand the term “executed” or “execution” also to include electronic signatures under the IT Act.
‘Electronic signature’ under the IT Act is “authentication of any electronic record by a subscriber by means of the electronic technique specified in the Second Schedule and includes digital signature.”
The proposed amendment seeks to simplify matters as much as there is no requirement to establish that the instrument (i.e., electronic record) in question can be attributed to the originator of such an electronic record. The addition of “electronic signature” in the definition of “executed” means that any instrument will be considered executed if ‘electronic signature’ is affixed, and there is no requirement to demonstrate that the electronic record can be attributed to the originator.
Presently, it is a practice to include in the instrument a provision stating that parties agree that electronic exchange in pdf format and the affixation of an electronic signature would be considered “duly signed” by the parties. With the new definition of the term “executed”, such a provision would be redundant.
- ‘Impressed Stamps’ to also include E-stamps
Under the Stamp Act, all instruments chargeable with duty and executed by any person in India must be stamped before or at the time of execution, and no instrument chargeable with duty shall be admitted in evidence for any purpose by any person unless such instrument is duly stamped.
The expression “duly stamped”, as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with law for the time being in force in India;
The term “duly stamped” has been defined narrowly to include instruments only bearing adhesive or impressed stamps.
The expression “impressed stamp” has been defined to include –
(a) labels affixed and impressed by the proper officer and
(b) stamps embossed or engraved on stamped paper.
The Stamp Bill proposes to expand the meaning of the term “impressed stamp” also to include-
(c) electronic stamp or e-stamp; and
(d) such other impressions as the State Government may specify.
An explanation to the definition specifies, “Electronic stamp or e-stamp means an Electronically generated impression denoting the payment of stamp duty by electronic means or otherwise and includes digital/paperless e-stamp.”
The proposed change seeks to broaden the definition of “impressed stamp”, which is a necessity in the digital age, a step most State Governments have taken for several years now.
Widening the net
- The meaning of ‘lease’ includes an agreement for leave and licence.
List II Entry 63 vests the State Legislature with the authority to specify the rates with respect to lease, agreement to lease and leave and licence. Typically, States have imposed a higher rate of stamp duty on an instrument of “lease” as opposed to an instrument of ‘leave and licence’.
The Stamp Act defines the term “lease” as a lease of immovable property and includes also-
(a) a patta;
(b) a kabuliyat or other undertaking in writing, not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for immovable property;
(c) any instrument by which tolls of any description are let;
(d) any writing on an application for a lease intended to signify that the application is granted
The Stamp Bill proposes to expand the meaning of the term “lease” also to include-
(e) any agreement to lease;
(f) any mining licence or mining lease;
(g) any leave and licence agreement;
‘The rationale for this change is not understood because it creates confusion. Conceptually, there is a difference between a “lease” and “leave and licence”; a “lease” and an “agreement to lease” and a “mining licence” or “mining lease”.
Suppose the intention is to bring parity in respect of stamp duty. In that case, it may be specified in the relevant entries for the imposition of stamp duty instead of modifying the meaning of the expression “lease”.
It may be noted that several States have separate entries for “lease” and “leave and license”.
- Definition of “market value”
The meaning of “market value” is relevant in the context of determining the reference for the calculation of stamp duty with respect to instruments chargeable with duty for transactions in stock exchanges and depositories.
The Stamp Act defines the term “market value” as an instrument through which –
(a) any security is traded in a stock exchange means the price at which it is so traded;
(b) any security which is transferred through a depository but not traded in the stock exchange means the price or the consideration mentioned in such instrument;
(c) any security is dealt otherwise than in the stock exchange or depository, means the price or consideration mentioned in such instrument;
The Stamp Bill proposes additions to the existing definition of “market value”, whereby “market value” shall also include an instrument through which-
(d) any right, title or interest in any estate or property is transferred to or vested in any other person, means the price of the property, which is the subject matter of the instrument, that it would have fetched or would fetch if sold in the open market on the date of execution of such instrument, determined in such manner and by such authority as may be prescribed by rules made under this Act or the consideration stated in the instrument, whichever is higher;
(e) any mining lease is granted or renewed, means the value as may be provided by rules made by the State Government under the Act.
The proposed change seeks to include additional instruments for which “market value” would be a determining factor for calculating stamp duty. It may be noted that several states have already achieved the preceding via state amendments.
- A single transaction involving several instruments
Under the Stamp Act, in case of any sale, mortgage or settlement, several instruments are employed for completing the transaction, stamp duty should be levied only on the principal instrument. In contrast, other instruments shall be chargeable with a duty of Rs. 1 instead of the duty specified under Schedule I of the Stamp Act.
Concerning a transaction involving several instruments, the Stamp Bill seeks to expand this provision and include several instruments employed in gift and lease transactions.
This is a much-needed and welcome amendment, especially in a scenario where a Memorandum of Gift and Agreement to Lease could be stamped on an ad valorem basis.
The Stamp Bill also proposes increasing the duty amount on other instruments from Rs. 1 to Rs. 100.
Introduction of General Penalties in Place of Criminal Offences and Procedure
The Stamp Act imposes penalties ranging from Rs. 100 and Rs. 5,000 under Section 62 to Section 68 for:
(a) executing, etc., instruments not duly stamped
(b) failure to comply with provisions in respect of Instruments chargeable with duty for transactions in stock exchanges and depositories
(c) failure to cancel adhesive stamp
(d) omission to state facts affecting duty to be set forth in instrument
(e) refusal to give receipt, and for devices to evade duty on receipts
(f) not making out policy, or making one not duly stamped
(g) drawing full number of bills or marine policies purporting to be in sets
(h) post-dating bills, and for other devices to defraud the revenue.
The Stamp Bill proposes to replace all the above sections with a provision imposing a General Penalty for contravention of any provisions of the Stamp Bill (for which no penalty has been separately provided for), with the penalty extending up to Rs. 25,000 coupled with an additional penalty for continued contravention of Rs. 1000 per day. Criminal prosecution contemplated under the Stamp Act is proposed to be done away with.
A single provision providing a range for the penalty applicable in case of general contravention of the stamp legislation does simplify the implementation process. The wide range also allows elbow room for subjectivity in exercising discretionary power concerning the quantum of penalty imposed.
Fee Revision and Currency Standardisation
(a) Under the Stamp Act, a person may make an application to the Collector to have an opinion as to the duty (if any) with which an instrument may be chargeable upon paying a fee of such amount not exceeding five rupees and not less than fifty naye paise as the Collector may in each case direct.
(b) The Stamp Bill proposes to increase this fee to an amount not exceeding Rs. 1000.
(c) Under the Stamp Act, a duty not exceeding Rs. 1 for counterparts or duplicates of instruments shall be payable.
(d) The Stamp Bill proposes to increase such duty chargeable from Rs. 1 to a duty not exceeding Rs. 100.
(e) Under the Stamp Act, where a receipt chargeable with a duty not exceeding 10 naye paise is tendered to or produced before any officer unstamped in the course of the audit of any public account, such officer may, in his discretion, instead of impounding the instrument, require a duly stamped receipt to be substituted therefore.
(f) The Stamp Bill proposes to increase this threshold from 10 naye paise to Rs. 100.
(g) Under the Stamp Act, a duly stamped receipt must be generated by the person receiving any money exceeding twenty rupees in amount or any bill of exchange, cheque or promissory note for an amount exceeding twenty rupees or receiving in satisfaction or part satisfaction of a debt any moveable property exceeding twenty rupees in value, on demand of the person who is paying or delivering the same.
(h) The Stamp Bill proposes to increase the value of the exchanged commodity/instrument from Rs. 20 to Rs. 1000.
Introduction of procedure for dealing with undervalued instruments
State Amendments presently introduce the procedure in relation to dealing with undervalued instruments.
The Stamp Bill proposes a procedure in this regard.
Where the registering officer registers any instrument of conveyance, exchange, gift, partition or settlement under the Registration Act, 1908, he may, after registering such instrument, refer the same to the Collector for determination of the value or consideration. The Collector, on receipt of such reference, or suo moto or otherwise has reasons to believe that the instrument is not duly stamped, he may, after giving the parties a reasonable opportunity of being heard and holding an enquiry (as prescribed by the rules under the stamp legislation) determine the value or consideration or the duty and the deficient amount of duty. The aggrieved party can appeal the order of the Collector before the Chief Controlling Revenue- Authority.
The proposed change streamlines the procedure for dealing with undervalued instruments and seeks uniformity by providing a common mechanism. This change is valid and a welcome step.
Bifurcation of Schedule – I
Instruments under the Stamp Act shall be chargeable with duty as indicated in Schedule I as the proper duty.
Presently, Schedule I, which sets forth the stamp duty regarding various instruments, does not specify if the subject matter falls under the Union List or State List.
The Stamp Bill introduces two separate Schedules:
Schedule – I: Specifying the stamp duty on instruments covered under List – I of the Seventh Schedule.
Schedule – II: Specifying the stamp duty on instruments covered under List – I of the Seventh Schedule.
This proposed change will simplify matters from a user perspective – the user would know to look out for State Amendments regarding matters falling in Schedule II.
Redundant Provisions
The Stamp Act has provisions in respect of the following:
(i) Collector shall repay to a person in possession of stamps in denominations other than in denominations of annas four of multiples thereof, in money within six months from the commencement of the Stamp Act.
(ii) Refund for the value of stamps in money when any person is in possession of stamps bearing the inscription – Refugee Relief.
(iii) The stamps in denominations of annas four or multiples thereof shall be deemed to be stamps of the value of twenty-five naye paise or, as the case may be, multiples thereof.
The Stamp Bill proposes to do away with the above provisions since annas and naye paise are no longer recognized units of account in the Indian currency system.
Viewpoint
The Stamp Act has been in existence for over a century now. The Stamp Act has struggled to keep pace with the advancements in technology and the evolution of the economic landscape over time. This has led to inconsistent and complex State Amendments, outdated stamp duty rates and redundancy.
The Stamp Bill lays out two separate schedules – one specifying the stamp duty on instruments covered under List – I and the other specifying the stamp duty on instruments covered under List – II. This would make the legislation user-friendly.
Express recognition of ‘electronic signature’ and ‘e-stamps’ as a mode of executing instruments is a progressive step in line with business requirements.
Doing away with criminal prosecution for offences relating to stamp duty is a much-needed and welcome move. This step is business-friendly.
The Stamp Bill is undoubtedly a step in the right direction – for it is forward-looking and sets the ground for the next level of significant changes. Ease of determination of stamp duty and a time-bound transparent process for adjudication of stamp duty may be expected going forward.
Associate at Alaya Legal
