Stamp Duty on Share Transfer: Process, Rates, & Penalty

Shares and debentures are important transferable assets of a company. A share transfer is possible via arrangements or contracts between two or more entities (company or individual). These transfers of assets and securities come under the dominion of The Company Act.

However, for transferring shares, the entities have to pay a certain amount of tax to the government, known as stamp duty on share transfer. After paying this amount, the shares are transferred to the new entity’s name.

In this article, let’s get to know what stamp duty on share transfer is, why it is paid to the government, share transfer stamp duty rates, processes, penalties and more.

What is Share Transfer?

Share transfer refers to the voluntary transfer of rights and duties (in some cases) of a company’s member (who is the owner or represents that company’s share). If the shareholder does not wish to be a part of the company anymore, they transfer their shares and duties to the new member who will take their place. 

Additionally, the shares of any company are transferable similar to that of immovable property. This transfer is only possible in case of the absence of the restrictions under the article of that company.

People Involved in Transfer of Share

Here is the list of people who are part or involved in the share transfer process:

• Memorandum’s Subscribers.
• Legal Representative (in case of deceased shareholder).
• The transferor of the shares.
• The transferee of the shares.
• Company (listed/unlisted).

What is a Share Transfer Stamp?

Share transfer stamp refers to the 0.25% affixed value that is considered for the transfer of share via the SH – 4 Forms (transfer instrument) and is needed to be crossed by the authorised. For example, for the shares valued at ₹ 2100, a share transfer stamp duty rate of ₹ 5 needs to be paid.

Why is Stamp Duty on Share Transfer Paid?

Under the Indian Stamp Act, Section 3, the instruments mentioned in Schedule 1 are subject to other provisions of the Act. Hence, they are chargeable to stamp duty under the below-mentioned conditions:

• The instruments that were executed in India after 1899.
• Exchange Bill (other than the ones that are payable on demand), drawn or made Promissory Notes (Out of India) along with the ones that are rented or paid, or the bills that are presented for the payment, acceptance, endorsed, transferred or the ones negotiated in India.
• Instruments other than the Promissory Note and Exchange Bill mentioned in the Schedule executed outside India and related to any property or matters that need to be done or had already been done are received in the country.

 The above mentioned reasons for the charges of stamp duty on share transfer in India. Also, there are some instruments on which no stamp duty is chargeable as per the Stamp Act:

• The exemption is related to the Merchant Shipping Act, 1894. The instruments of some merchant shipping are also not chargeable under the Act.
• Any instrument related to the government is not chargeable, but to be exempt from this, the government will have to pay the stamp duty charges for the instrument.

As per Stamp Act Section 2(14) and the Finance Act amendments, the instruments include the documents through which the liabilities, as well as the rights, are transferred, created, extended, extinguished, or limited or the purports to be extinguished, transferred, or created. Hence, it is clear that the documents used to transfer shares are instruments and are liable for share transfer stamp duty charges.

Stamp Duty Charges in Other States

Share Transfer Stamp Duty Rate

The charges of stamp duty on share transfer for different mechanisms of transferring method is mentioned in the table below:

How to Transfer Shares under the Companies Act 2013

Given below is the step-by-step process of transferring shares as per the Companies Act 2013. 

Step 1: Obtain the transfer deed in the authority’s prescribed and endorsed SH – 4 form. However, the transfer instrument will not be in the prescribed SH – 4 forms in the below-mentioned cases:

• In situations where the director or the nominees transfer the shares on behalf of another person under the Companies Act, 2013 Section 187.
• When the director or the nominees transfers on behalf of the central or state government’s corporation.
• Depository share transfer as repayment security of loan or advances if made with any of the financial institutions:
  • SBI – State Bank of India
  • Scheduled Banks
  • Other Banking Company
  • Financial Institution
  • State Government
  • Central Government
  • Corporation under State or Central Government
  • Trustees who filed the declaration

Note: A standard format can be used for the transfer instrument to transfer debentures.

Step 2: Fetch the trust deeds in case of debentures, articles of association in cases of shares. Also, get the registered transfer deed, either by the transfer or the transferor. It can also be obtained on behalf of the transferor or transferee under the provisions of the Company Act.

Step 3: The transfer deed should have a stamp under the stamp duty notification and Stamp Act. The current stamp duty on share transfer is .25 paise/hundred rupees share value or its part. For example, for a share whose value is ₹ 1,050, a share transfer stamp duty rate of ₹ 2.75 needs to be paid.

Step 4: Check that the transfer deed stamp attached is cancelled at the transfer time or before signing on the transfer deed.

Step 5: The person who signs as the approver must ensure that the transferor or transferee signs the deed of transferring themselves.

Step 6: The relevant allotment letter or certificate of share or debenture, along with the transfer deed, should be sent to the company. 

Step 7: In situations where the transferor is the partial owner of the shares or debentures, the company needs to duly acknowledge the transferee about the due amount of debentures or shares. The transferee will have to give a no-objection certificate within two weeks from the date they receive the notice. 

Step 8: Then, affix the share transfer stamp of the same value on the written application if the signed transfer deed is lost. In such situations, the board has the right to register the transfer with some specific indemnity terms as they think will fit with the company and the transferee. 

Step 9: If the company’s shares are listed in a reputable stock exchange, the company is not liable to charge any registration fees for the transfer of shares or debentures.

Penalties for Non-Compliance of Stamp Act

According to Section 62A of the Finance Act, 2019, the entity must accept the penalties for non-compliance with Section 9A. Since the compliance onus of Section 9A is on the collecting agents, all the penalties should be paid and accepted by the collecting agents only for stamp duty on share transfer. 

The maximum and minimum penalties for different entities are given below. 

FAQ’s about Stamp Duty on Share Transfer