Indian Stamp Act, 1899

SIGNIFICANCE OF STAMP DUTY: RECENT AMENDMENT- 2016

A Stamp Duty is required and is important to be paid for the stamp/stamps on any instrument that records transactions. Stamp Duty serves as an evidence or proof of transaction and can also be admitted and accepted as evidence in a court of Law reason being the instrument was witnessed by an impartial Government appointed Official and stamp duty paid for the same has been recorded.

This Act has been amended several times and the most recent amendment took place after the Finance Act, 2006 being the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016.

Below is a list where Duty is levied by the Union (entry 91) on:

  • Bills of Exchange
  • Letters of Credit
  • Bills of Lading
  • Policies of Insurance
  • Transfer of Shares
  • Proxies and Receipts
  • Debentures
  • Promissory Notes

Duty is levied by the States (entry 63) for all other documents except from the list mentioned above, for documents that require duty be paid.

The Karnataka Stamp Act, 1957

The Stamp Duty paid to the State Government of Karnataka is the third highest source of Revenue for the State Government.

Below are the documents required to be Stamped by an authorized officer, notary or magistrate and Stamp Duty has to be paid to the State Government of Karnataka.

Documents such as:

  • Affidavit
  • Mortgage, Adoption, Gift and Will Deed
  • Power of Attorney
  • Settlement of moveable or immovable property for: charitable or religious purposes, distribution of property and in consideration of marriage.
  • Bonds and Securities issued on loans
  • Rental Agreements, Lease and Surrender of Lease
  • Limited Liability Partnerships
  • Articles of Association
  • Construction of Property
  • Conveyance

Business Agreements That Require Stamp Duty:

The following is a list of business agreements that are required to be stamped:

  • Limited Liability Partnerships (LLP)

The Limited Liability Partnerships Act, 2008 states that the liabilities of the partners (some or all) of an LLP are limited. The liability of a partner is limited to the extent of capital contributed and also, each partner is protected from personal liability. A comprehensive Price list of  LLP Stamp Duty  based on the location and capital contribution of the partnership is available as well.

  • Articles of Association

The Articles of Association and Memorandum of Association have prescribed fees based on the location of the entity under Rules 10 and 39 of the Indian Stamp Act, 1899. These are important documents required for the incorporation of a company.

  • Partnership Agreements

An agreement of understanding or contract between two or more parties/persons that states the purpose of the partnership, the roles and responsibilities of the partners, the distribution of profit or loss (as a percentage to each partner) and the extent of liabilities of each partner as well. The cost of Stamp Duty on Partnership Agreements is INR 1000.

  • Registration of Partnership Firms

Registration of a partnership firm is not compulsory and is up to the discretion of the partners under the Indian Partnership Act, 1932. Though registration is not a compulsion, certain added benefits and advantages come with registration. Different States have different fees (based on state Stamp Acts) for registration.

  • Transfer of Shares

The share transfer deed should be signed and duly stamped. The Stamp duty payable as per the Indian Stamp Act, 1899 is 25 paise per INR 100 (based on the market value of shares on the date of execution of the deed). Stamp duty is also payable on share certificates, which are legal evidence of ownership, possession or transfer of shares. Here again the Stamp Duty payable varies from State to State.

  • Bills of Exchange/Promissory Notes

A written promise to pay a certain sum at a future date in exchange for a payment, good or service between two or more parties/people. Stamp Duty  is payable for execution of bills of exchange or promissory notes.

  • Letters of Credit

One bank (A) issues a letter of credit to another bank (B) for the guarantee of payments made to a person from one bank (B) under specified conditions. Startups and businesses that require credit or funding will also be required to pay Stamp Duty for the letter of credit. The Stamp Duty  payable is published by the Center.

  • Debentures

A debenture is a long-term security (yielding a fixed rate of interest) or debt-instrument secured against an asset. Stamp Duty is only applicable on transfer of debentures and not the issue of debentures. Stamp Duty is also payable on debentures that are treated as marketable securities (stock with the capacity of being sold).

  • Bonds and Securities Issued on Loans

It is mandatory for Stamp Duty  to be paid on securities and bonds issued on loans. Though this point is not a necessity in terms of business agreements, it’s inclusion was needed.

VALIDITY & LEGALITY OF STAMP DUTY:

Domestic Validity of Stamp Duty: (Duration)

Stamp Duty, if paid on time is valid for a period of 6 months from the date of execution (Karnataka, Maharashtra, etc. the validity period varies from State to State).

 

International Validity of Stamp Duty: (Duration)

Stamp Duty paid on international documents that need to be produced abroad will be valid for a period of 3 months.

Legality of Stamp Duty:

If the stamp duty has not been paid or a document is not properly stamped, then such a document is inadmissible as evidence in a court of law.

Any offense relating to non-payment of stamp duty or falsification of stamps is a criminal offense under IPC.

Delay in payment of Stamp Duty will attract a monthly penalty of 2% up to 200% of the total amount. Stamp Duty is paid by the buyer or purchaser in the transaction. Stamp Duty should be purchased in the name of the parties or person/persons executing the transaction or else will be considered void and inadmissible as evidence in a court of Law.

 

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