‘Stamp Duty’ is a tax levied on an instrument by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded.
Under the Constitution of India, stamp duties are divided into those specified under the Union List (List I of Schedule VII) and under the State List (List II of Schedule VII). Under Entry 63 of the State List, State Governments have the exclusive power to fix the stamp duties for instruments, other than those specified under Entry 91 of the Union List. Most of the States have enacted specific legislation governing stamp duty, while others have adopted the Indian Stamp Act 1899, with state-specific modifications. Since, stamp duty generates substantial revenue; States have been fairly proactive in updating and amending their specific legislation governing stamp duty and as a result of which, at present, the stamp duty incidence, on an instrument, varies from State to State and there is a vast difference in the amount of stamp duty payable across various States.
This article, therefore, focuses on the need of having a uniform chargeability/percentage/slab of stamp duty payable on a document, irrespective of the State in which it is executed, for some of the following reasons.
Avoidance
Because of the high stamp duty burdens in a particular State, individuals & corporates have found a variety of ways to avoid the stamp duty burden. For e.g. the simplest way, of avoiding high stamp duty burden, is to execute instruments in a State, where the stamp duty incidence is not so high. Therefore, this deprives a particular State from earning revenues simply because of high stamp duty implications, in spite of the fact that the transaction may pertain to that particular State.
Anomaly
There are also certain anomalies for e.g. in Entry 91 of the Union List, only the Central Government has power to levy stamp duty on issue of debentures. The States can levy stamp duty only on transfer of debentures, not issue of debentures. However, interestingly, some State stamp laws also provide entries pertaining to payment of duty on issue of debentures which are different from the stamp duty prescribed by the Central Government, which creates confusion among issuing companies.
Stamping of e-Documents
Many of the States have now provided that instruments attracting stamp duty would also include electronic records. A common practice that one comes across is documents being executed in State X, whilst the registered office of the executant company is situated in state Y. If such document is required to be filed with the registrar of companies in state Y, for example, a document creating charge, then the document would have to be uploaded electronically onto the website of the Ministry of Company Affairs. Since the concerned registrar of companies office (State Y in this case) would download the documents in State Y, the electronic records are deemed to have been brought into the state where registered office is located at the time when the registrar of companies downloads the document and this may attract the stamp duty in State Y at that point of time. Therefore, such provisions increase the stamp duty liability of an executant company (simply because it has its registered office in some other state) and further add on to the delay in concluding a transaction.
Conclusion
It is widely believed that the high rates of stamp duties lead to significant under-valuation of the transactions, variety of evasion and avoidance mechanisms, which leads directly to stamp duty revenue losses to a particular State. Unfortunately, there is a degree of ‘tunnel vision’ with respect to a State’s thinking, as their focus is primarily on increasing revenue. This often results in the burden of excessive stamp duty being imposed on documents and transactions.
In light of the above background, it is recommended that a uniform stamp duty law be enacted and levied in all States on all instruments, on similar lines as proposed for indirect taxes through the Goods and Services Tax (GST) in India, so as to avoid incidences of higher stamp duty in one particular State, misinterpretation and confusion created by the various stamp acts and to curb stamp duty evasion.
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