Introduction
In transactions involving securities, stamp duty is levied both on the issuance of securities by companies and on the transfer of securities between parties. In the case of a transfer, stamp duty is payable on the share transfer instrument, while in the case of issuance, it is levied on the relevant securities certificates. Where securities are held in dematerialised form, stamp duty is collected through the concerned depository.
Under the Indian stamp duty regime, particularly in relation to financial instruments and transactions, the power to levy stamp duty is shared between the Central and State Governments. While this dual system generally functions effectively, it can at times create areas of ambiguity and potential conflict. While the constitution empowers the Central Government to levy stamp duty on the transfer of shares, there is no explicit mention as to who can levy stamp duty on the issuance of shares by companies.
To facilitate ease of doing business and to create a unified framework for the payment of stamp duty on the issuance and transfer of securities, amendments were introduced through the Finance Act, 2019 ("Finance Act") and the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019. Pursuant to these amendments, Schedule I of the Indian Stamp Act, 1899 ("Stamp Act") was revised, and specific rates of stamp duty were prescribed, inter alia, for the issuance and transfer of shares.
The constitutional conundrum: Stamp duty on issuance of shares
The division of legislative powers between the Central and State Governments in India is clearly outlined in the Seventh Schedule read with Article 246 of the Constitution of India ("Constitution"). This schedule contains three lists: the Union List (List I), the State List (List II), and the Concurrent List (List III). The Union List grants Parliament exclusive authority to legislate on certain matters, while the State List grants the same to state legislatures. The Concurrent List, as the name suggests, allows both to legislate, with central law prevailing in case of conflict.
When it comes to stamp duty, the division of power is particularly interesting and forms the crux of the ambiguity relating to levy of stamp duty on issuance of shares. Entry 91 of the Union List empowers the Central Government to prescribe the rate of stamp duty on specific items namely bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts.
Conversely, Entry 63 of the State List gives the State Governments the power to impose stamp duty in respect of documents other than those specified in the provisions of List I.
The Union List clearly mentions "transfer of shares" but does not mention issuance of shares. Therefore, based on the constitutional division of powers and the wordings of Entry 63, it is the State Governments that have the authority to levy stamp duty on the issuance of shares, not the Central Government.
Amendment in the Stamp Act pursuant to the Finance Act, 2019
Pursuant to the Finance Act, two new sections, Section 9A and Section 9B were introduced in the Stamp Act to provide for the levy and collection of stamp duty on behalf of State Governments for the issuance and transfer of securities, whether carried out through depositories and stock exchanges or otherwise.
Section 9A(c) of the Stamp Act provides that when securities are issued and any creation or change is made in the records of a depository, the stamp duty on the allotment list shall be collected by the depository from the issuer, on behalf of the State Government, based on the total market value of the securities.
Section 9B(a) of the Stamp Act provides that when securities are issued otherwise than through a stock exchange or depository, the issuer shall pay stamp duty on each such issue at the place where its registered office is located, based on the total market value of the securities.
Further, a new Article 56A was inserted in Schedule I of the Stamp Act, prescribing the rates of stamp duty on "security other than debentures." Pursuant to Sections 9A and 9B, the stamp duty on the issuance and transfer of securities shall be levied at the rates specified under Article 56A of Schedule I, wherein the rate of stamp duty on the issuance of securities is prescribed at 0.005%. The term "securities" is defined in Section 2(23A) of the Indian Stamp Act, which in turn refers to Section 2(h) of the Securities Contracts (Regulation) Act, 1956, which inter-alia includes:
(i) shares, scrips stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or a pooled investment vehicle or other body corporate;
Given the broad scope of this definition, which expressly covers shares, the Central Government has effectively imposed a levy on the issuance of shares. As discussed above, since the levy of stamp duty on issuance of shares is a state subject, insertion of Article 56A to Schedule I appears to be in direct conflict with Entry 63 of the State List. The legal principle of ultra vires, meaning "beyond one's powers," applies here. Any law or action that exceeds the authority granted to the body that enacted it can be declared invalid. Therefore, this provision of the Finance Act could face a constitutional challenge and be declared ultra vires the Constitution.
Need for clarity
While certain States, such as Maharashtra, do not follow the stamp duty rates prescribed by the Central Government and instead levy duty at the rates specified under the Maharashtra Stamp Act, 1958, issuers in other States end up paying stamp duty at the rates prescribed under the Stamp Act. This inconsistency creates ambiguity, and payments made in accordance with the Stamp Act may be deemed deficient by State stamp authorities, who may then order stamp duty adjudication. Such adjudication is not only time consuming for both issuers and shareholders but can also complicate any subsequent transfer of shares due to concerns over a defective title. In light of these challenges, greater clarity on this issue is needed from Department of Economic Affairs and revenue departments of the respective States, regarding rate of stamp duty on issue of shares through physical and dematerialised form.
Recent circular by the office of the divisional commissioner, revenue department, Delhi1
It is noteworthy that the stamp duty rates on the issuance of shares prescribed under the stamp laws of most States are significantly higher than the rate of 0.005% prescribed by the Central Government under Article 56A of Schedule I of the Stamp Act. This disparity represents a substantial revenue loss for States with respect to this particular levy. While the Central Government has not issued any clarification on this issue, some States have recognized the ambiguity and have directed issuers to pay stamp duty in accordance with their respective State Stamp Acts.
In this context, the Office of the Divisional Commissioner, Revenue Department, Delhi ("Delhi Revenue Department"), issued a circular dated July 29, 2025, directing all listed and unlisted companies to pay stamp duty on the issuance of shares at 0.10% of the value of shares, as prescribed under the NCT of Delhi Stamp Act and also directed for adjudication of stamp duty in case of deficiency. The circular extensively cites the relevant constitutional provisions, affirming the right of the Government of NCT of Delhi to levy stamp duty under Article 19 of Schedule IA (applicable to Delhi), rather than collecting duty under Article 56A of Schedule I of the Stamp Act.
In this backdrop, the Delhi Revenue Department, by way of a separate letter dated September 29, 20252, addressed to the National Securities Depository Limited and Central Depository Services (India) Limited, questioned the authority of depositories to collect stamp duty at the rate of 0.005%. The letter further directed the depositories to refrain from collecting stamp duty on behalf of Government of NCT of Delhi, clarifying that the mechanism for payment of stamp duty on share certificates (whether physical or demat) has been in place since 2016 through Stock Holding Corporation of India Limited.
Conclusion
The ongoing ambiguity in the legal framework of central and state government concerning stamp duty on issuance of shares created significant uncertainty for issuers, investors, and intermediaries. While the Finance Act sought to streamline and centralize the collection of stamp duty, the absence of explicit clarity on legislative competence has allowed States to assert their own powers, often prescribing higher rates of duty than those prescribed by the Central Government. This not only exposes issuers to potential adjudication proceedings but also undermines the objective of ease of doing business. A definitive resolution through either legislative amendment or any other manner is essential to harmonize the stamp duty regime, protect State revenues, and ensure regulatory certainty for businesses operating across India.
Footnotes
1. Circular No. F10(166)/COS(HQ)/STAMP.BR/2025/93 issued dated July 29, 2025
2. F10(166)/COS(HQ)/Stamp Br./2025/181 issued dated September 29, 2025
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