Some facts related to Stamp Duty on Insurance Policies

As you are aware that an Insurance Policy if a contract between an insurance company and the insured. An Insurance Policy/Contract in which insurer promises to indemnify the insured financially loss or damage due to insured risks/perils.

The Indian Stamp Act, 1899 is fiscal legislation enacted by the British Government with an object to increase the revenue of the government. Stamp duty is an indirect tax levied on various kinds of instruments and transactions like bills of exchange, conveyance deed, mortgage deed, lease deed, promissory notes, transfer of shares, immovable properties, Policies of Insurance etc. by the state governments.

Under the Indian Constitution, the levy of stamp duty comes under the State subject (Entry 63 of State List-II) and it varies from state to state as it is not constant.

A document or instrument properly stamped has an evidentiary value and is admissible in the court of law. Stamp duty is to be paid in any sale or transfer of property. Delay in the payment of stamp duty attracts a penalty which is generally an ad valorem rate and the maximum penalty could range from two times the deficient stamp duty to ten times the deficient stamp duty, but it doesn't make the document void or invalid.

SECTION 2(14) "instrument" includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded;

TYPES OF STAMP DUTY

Impressed Stamps

It is usually done by the process of embossing or engraving. Labels are affixed by the officer concerned and in the banks by the franking machines.

Adhesive Stamps

It is usually stuck to the instruments by any form of adhesive and it is of two types:

(a) Postal Stamps: Stamps used for transacting with the post office,

(b) Non-Postal Stamps: They usually have a wider application as they can be in the form of court fee stamps, notarial stamps, revenue stamps, share transfer stamps, etc.

IMPORTANCE OF STAMP DUTY

As mentioned earlier, the stamp duty varies from state to state and it also depends upon the value of the property. Stamp duty depends upon the appraised market value of the property. Stamp duty and registration charges amount to a substantial source of revenue for the state governments, often the third of the fourth biggest revenue contributors. Stamp duty is payable whether the property is under construction, completed, or on re-sale. It is payable on the value of the property or on the circle rate, whichever is higher.

PLEASE NOTE THAT: Non-Payment of Stamp Duty does not invalidate a contract or agreement, but it cannot be produced in Court of Law as evidence.

STAMP DUTY ON INSURANCE POLICIES

SECTION 2(19) OF THE INDIAN STAMP ACT, 1899

"Policy of insurance" includes—

(a) any instrument by which one person, in consideration of a premium, engages to indemnify another against loss, damage or liability arising from an unknown or contingent event;

(b) a life-policy, and any policy insuring any person against accident or sickness, and any other personal insurance.

SECTION (19A) "POLICY OF GROUP INSURANCE"

It means any instrument covering not less than fifty or such smaller number as the Central Government may approve, either generally or with reference to any particular case, by which an insurer, in consideration of a premium paid by an employer or by an employer and his employees jointly, engages to cover, with or without medical examination and for the sole benefit of persons other than the employer, the lives of all the employees or of any class of them, determined by conditions pertaining to the employment, for amounts of insurance based upon a plan which precludes individual selection;]

SECTION (20) "POLICY OF SEA-INSURANCE" OR "SEA-POLICY"

(a) means any insurance made upon any ship or vessel (whether for marine or inland navigation), or upon the machinery, tackle or furniture of any ship or vessel, or upon any goods, merchandise or property of any description whatever on board of any ship or vessel, or upon the freight of, or any other interest which may be lawfully insured in, or relating to, any ship or vessel, and

(b) includes any insurance of goods, merchandise or property for any transit which includes, not only a sea risk within the meaning of clause (a), but also any other risk incidental to the transit insured from the commencement of the transit to the ultimate destination covered by the insurance;

Where any person, in consideration of any sum of money paid or to be paid for additional freight or otherwise, agrees to take upon himself any risk attending goods, merchandise or property of any description whatever while on board of any ship or vessel, or engages to indemnify the owner of any such goods, merchandise or property form any risk, loss or damage, such agreement or engagement shall be deemed to be a contract for sea-insurance;

ARTICLE 47, DIVISION D OF SCHEDULE I of Indian Stamp Act, 1899

It prescribed rates on which different types of Insurance Policies charged for Stamp Duty.

PLEASE NOTE THAT: an Insurance Contract comes into existence,when proposal of proposer is accepted by the insurance company and terms of proposal are complied with by the proposer /insured. The Letter of Acceptance /Cover Note is specifically exempted from Stamp Duty.

SECTION 66 OF THE STAMP ACT, 1899

It provides that

Penalty for not making out policy or making one not duly stamped.—

Any person who,—

(a) receives, or takes credit for, any premium or consideration for any contract of insurance and does not, within one month after receiving, or taking credit for, such premium or consideration, make out and execute a duly stamped policy of such insurance; or

(b) makes, executes or delivers out any policy which is not duly stamped, or pays or allows in account, or agrees to pay or allow in account, any money upon, or in respect of, any such policy, shall be punishable with fine which may extend to two hundred rupees.

PLEASE NOTE THAT: A Policy /Insurance Contract must be stamped with duty as prescribed in Article 47, Division D of Schedule I of the Act, 1899.

STAMP DUTY ON ASSIGNMENT OF INSURANCE POLICIES

As we have discussed above the absence of a policy duly stamped, does not affect the validity of the contract of insurance, but an unstamped policy shall not be admitted as an evidence in the Court of Law.

Where assignment is executed on the back of policy, it does not required Stamp Duty. If assignment is executed by a separate agreement/deed , it must be duly stamped. An assignment executed by the government is exempted.

SECTION 25 OF THE INDIAN STAMP ACT, 1899

VALUATION IN CASE OF ANNUITY, ETC.

Where an instrument is executed to secure the payment of an annuity or other sum payable periodically, or where the consideration for a conveyance is an annuity or other sum payable periodically, the amount secured by such instrument or the consideration for such conveyance, as the case may be, shall, for the purposes of this Act be deemed to be—

(a) where the sum is payable for a definite period so that the total amount to be paid can be previously ascertained—such total amount;

(b) where the sum is payable in perpetuity or for an indefinite time not terminable with any life in being at the date of such instrument or conveyance—the total amount which, according to the terms of such instrument or conveyance, will or may be payable during the period to twenty years calculated from the date on which the first payment becomes due; and

(c) where the sum is payable for an indefinite time terminable with any life in being at the date of such instrument or conveyance—the maximum amount which will or may be payable as aforesaid during the period of twelve years calculated from the date on which the first payment becomes due.

PLEASE NOTE THAT PROVISIONS RELATED TO PAYMENT OF STAMP DUTY

SECTION 3 IN THE INDIAN STAMP ACT, 1899

Instruments chargeable with duty

Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore, respectively, that is to say—

(a) every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July, 1899;

(b) every bill of exchange payable otherwise than on demandor promissory note drawn or made out of India on or after that day and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and

(c) every instrument (other than a bill exchange or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of India on or after that day relates to any property situate, or to any matter or thing done or to be done, in India and is received in India:

Provided that no duty shall be chargeable in respect of—

(1) any instrument executed by, or on behalf of, or in favour of, the Government in cases where, but for this exemption, the Government would be liable to pay the duty chargeable in respect of such instrument;

(2) any instrument for the sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of any ship or vessel, or any part, interest, share or property of or in any ship or vessel, registered under the Merchant Shipping Act, 1894, or under Act 19 of 1938, or the Indian Registration of Ships Act, 1841 (10 of 1841) as amended by subsequent Acts.

(3) any instrument executed, by, or, on behalf of, or, in favour of, the Developer, or Unit or in connection with the carrying out of purposes of the Special Economic Zone.

Explanation.—For the purposes of this clause, the expressions "Developer", "Special Economic Zone" and "Unit" shall have meanings respectively assigned to them in clause (g), (za) and (zc) of section 2 of the Special Economic Zones Act, 2005.]

PLEASE NOTE THAT Policies of sea-insurance

Where any sea-insurance is made for or upon a voyage and also for time, or to extend to or cover any time beyond thirty days after the ship shall have arrived at her destination and been there moored at anchor, the policy shall be charged with duty as a policy for or upon a voyage, and also with duty as a policy for time.

TIME LIMIT FOR PAYMENT OF STAMP DUTY

SECTION 17. Instruments executed in India

All instrument chargeable with duty and executed by any person in India shall be stamped before or at the time of execution.

SECTION 18. Instruments other than bills and notes are executed out of India

(1) Every instrument chargeable with duty executed only out of India and not being a bill of exchange or promissory note, may be stamped within three months after it has been first received in India.

(2) Where any such instrument cannot, with reference to the description of stamp prescribed therefor, be duly stamped by a private person, it may be taken within the said period of three months to the Collector, who shall stamp the same, in such manner as the State Government may by rule prescribe, with a stamp of such value as the person so taking such instrument may require and pay for.

SECTION 19. Bills and notes drawn out of India

The first holder in India of any bill of exchange payable otherwise than on demandor promissory note drawn or made out of India shall, before he presents the same for acceptance or payment, or endorses, transfers or otherwise negotiates the same in India, affix thereto the proper stamp and cancel the same: Provided that,—

(a) if, at the time any such bill of exchange or note comes into the hands of any holder thereof in India, the proper adhesive stamp is affixed thereto and cancelled in manner prescribed by Section 12 and such holder has no reason to believe that such stamp was affixed or cancelled otherwise than by the person and at the time required by this Act, such stamp shall, so far as relates to such holder, by deemed to have been duly affixed and cancelled;

(b) nothing contained in this proviso shall relieve any person from any penalty incurred by him for omitting to affix or cancel a stamp.

AMOUNT OF STAMP DUTY

As you are aware that Insurance being a Central Government subject ( Article 47 of the Union List in the Seventh Schedule to the Constitution of India) Stamp Duty payable in Life Insurance Polices is fixed by Central Government as follows;

NOTE: OTHER INSURANCE PRODUCTS PLEASE REFER ARTICLE 47,DIVISION D OF SCHEDULE I TO THE INDIAN STAMP ACT, 1899.

PLEASE NOTE THAT: in case of Group Insurance Policies on renewal if Sum Insured exceeds the Sum Insured previously insured on which Stamp Duty has been paid , the proper stamp must be borne on the excess sum so insured.

WHO PAYS STAMP DUTY: ( SECTION 29 of The Indian Stamp Act, 1899 )

In the absence of an agreement to the contrary , the expenses of providing proper stamp duty shall;

(a) in the case of any instrument described in any of the following Articles of Schedule I, namelyby the person drawing, making or executing such instrument:

(Administration Bonds),
(Agreement relating to deposit of Title deeds, Pawn or Pledge)],
(Bill of Exchange),
(Bonds),
(Bottomry Bond),
(Customs Bond),
(Debenture),
(Further Charge),
(Indemnity-Bond),
(Mortgage-deed),
(Promissory-note),
(Release),
(Respondentia Bond),
(Security Bond or Mortgage-deed),
(Settlement),
(Transfer of shares in an incorporated company or other body corporate),
(Transfer of debentures, being marketable securities, whether the debenture is liable to duty or not, except debentures provided for by section 8),
(Transfer of any interest secured by a bond, mortgage-deed or policy of insurance);

(b) In the case of a policy of insurance other than fire insurance-by person affecting the insurance.
(bb) In the case of fire insurance -by person issuing the policy.

(c) In case of conveyance-by grantee.

(d) in case of lease or agreement to lease-by the lessee or intended lessee.

(e) in the case of an instrument of exchange—by the parties in equal shares;

(f) in the case of a certificate of sale—by the purchaser of the property to which such certificate relates; and

(g) in the case of an instrument of partition—by the parties thereto in proportion to their respective shares in the whole property partitioned, or, when the partition is made in execution of an order passed by a Revenue authority or Civil Court or arbitrator, in such proportion as such authority, Court or arbitrator directs.

CONSEQUENCES ON NON-PAYMENT OF STAMP DUTY

SECTION 33 OF INDIAN STAMP ACT, 1899

Examination and impounding of instruments.—

(1) Every person having by law or consent of parties, authority to receive evidence, and every person in charge of a public office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.

(2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed:

Provided that—

(a) nothing herein contained shall be deemed to require any Magistrate or Judge of a Criminal Court to examine or impound, if he does not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898);

(b) in the case of a Judge of a High Court, the duty of examining and impounding any instrument under this section may be delegated to such officer as the Court appoints in this behalf.

(3) For the purposes of this section, in cases of doubt,—

(a) the State Government may determine what offices shall be deemed to be public offices; and

(b) the State Government may determine who shall be deemed to be persons in charge of public offices.

SECTION 34 ( SPECIAL PROVISION AS TO UNSTAMPED RECEIPTS)

Where any receipt chargeable with a duty not exceeding ten 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.

SECTION 35 (INSTRUMENTS NOT DULY STAMPED INADMISSIBLE IN EVIDENCE, ETC)

No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped: Provided that—

(a) any such instrument shall, be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;

(b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it;

(c) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;

(d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898);

(e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of the Governmentor where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act.

SECTION 36 (ADMISSION OF INSTRUMENT WHERE NOT TO BE QUESTIONED)

Where an instrument has been admitted in evidence, such admission shall not, except as provided in section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not duly stamped.

SECTION 37 (ADMISSION OF IMPROPERLY STAMPED INSTRUMENTS)

The State Governmentmay make rules providing that, where an instrument bears a stamp of sufficient amount but of improper description, it may, on payment of the duty with which the same is chargeable be certified to be duly stamped, and any instrument so certified shall then be deemed to have been duly stamped as from the date of its execution.

SECTION 38 (INSTRUMENTS IMPOUNDED, HOW DEALT WITH)

(1) Where the person impounding an instrument under section 33 has by law or consent of parties authority to receive evidence and admits such instrument in evidence upon payment of a penalty as provided by section 35 or of duty as provided by section 37, he shall send to the Collector an authenticated copy of such instrument, together with a certificate in writing, stating the amount of duty and penalty levied in respect thereof, and shall send such amount to the Collector, or to such person as he may appoint in this behalf.

(2) In every other case, the person so impounding an instrument shall send it in original to the Collector.

PENALTIES UNDER INDIAN STAMP ACT, 1899

SECTION 43 (PROSECUTION FOR OFFENCE AGAINST STAMP-LAW.)

The taking of proceedings or the payment of a penalty under this Chapter in respect of any instrument shall not bar the prosecution of any person who appears to have committed an offence against the Stamp-law in respect of such instrument:

Provided that no such prosecution shall be instituted in the case of any instrument in respect of which such a penalty has been paid, unless it appears to the Collector that the offence was committed with an intention of evading payment of the proper duty.

SECTION 48 (RECOVERY OF DUTIES AND PENALTIES)

All duties, penalties and other sums required to be paid under this Chapter may be recovered by the Collector by distress and sale of the movable property of the person from whom the same are due, or by any other process for the time being in force for the recovery of arrears of land-revenue.

SECTION 62 (PENALTY FOR EXECUTING, ETC., INSTRUMENT NOT DUTY STAMPED)

(1) Any person

(a) drawing, making, issuing, endorsing or transferring, or signing otherwise than as a witness, or presenting for acceptance or payment, or accepting, paying or receiving payment of or in any manner negotiating, any bill of exchange payable otherwise than on demand or promissory note without the same being duly stamped; or

(b) executing or signing otherwise than as a witness any other instrument chargeable with duty without the same being duly stamped; or

(c) voting or attempting to vote under any proxy not duly stamped, shall for every such offence be punishable with fine which may extend to five hundred rupees:

Provided that, when any penalty has been paid in respect of any instrument under section 35, section 40 or section 61, the amount of such penalty shall be allowed in reduction of the fine (if any) subsequently imposed under this section in respect of the same instrument upon the person who paid such penalty.

(2) If a share warrant is issued without being duly stamped, the company issuing the same, and also every person who, at the time when it is issued, is the managing director or secretary or other principal officer of the company, shall be punishable with fine which may extend to five hundred rupees.

SECTION 63 (PENALTY FOR FAILURE TO CANCEL ADHESIVE STAMP)

Any person required by section 12 to cancel an adhesive stamp, and failing to cancel such stamp in manner prescribed by that section, shall be punishable with fine which may extend to one hundred rupees.

SECTION 64 (PENALTY FOR OMISSION TO COMPLY WITH PROVISIONS OF SECTION 27)

Any person who, with intent to defraud the Government,—

(a) executes any instrument in which all the facts and circumstances required by section 27 to be set forth in such instrument are not fully and truly set forth; or

(b) being employed or concerned in or about the preparation of any instruments, neglects or omits fully and truly to set forth therein all such facts and circumstances; or

(c) does any other act calculated to deprive the Government of any duty or penalty under this Act, shall be punishable with fine which may extend to five thousand rupees.

SECTION 65 (PENALTY FOR REFUSAL TO GIVE RECEIPT, AND FOR DEVICES TO EVADE DUTY ON RECEIPTS)

Any person who,—

(a) being required under section 30 to give a receipt, refuses or neglects to give the same; or

(b) with intent to defraud the Government of any duty, upon a payment of money or delivery of property exceeding twenty rupees in amount or value, gives a receipt for an amount or value not exceeding twenty rupees, or separates or divides the money or property paid or delivered, shall be punishable with fine which may extend to one hundred rupees.

SECTION 66 ( PENALTY FOR NOT MAKING OUT POLICY OR MAKING ONE NOT DULY STAMPED)

Any person who;

(a) receives, or takes credit for, any premium or consideration for any contract of insurance and does not, within one month after receiving, or taking credit for, such premium or consideration, make out and execute a duly stamped policy of such insurance; or

(b) makes, executes or delivers out any policy which is not duly stamped, or pays or allows in account, or agrees to pay or allow in account, any money upon, or in respect of, any such policy, shall be punishable with fine which may extend to two hundred rupees.

SECTION 67 (PENALTY FOR NOT DRAWING FULL NUMBER OF BILLS OR MARINE POLICIES PURPORTING TO BE IN SETS)

Any person drawing or executing a bill or exchange payable otherwise than on demand or a policy of marine insurance purporting to be drawn or executed in a set of two or more, and not at the same time drawing or executing on paper duly stamped the whole number of bills or policies of which such bill or policy purports the set to consist, shall be punishable with fine which may extend to one thousand rupees.

SECTION 68 (PENALTY FOR POST-DATING BILLS, AND FOR OTHER DEVICES TO DEFRAUD THE REVENUE)

Any person who,—

(a) with intent to defraud the Government of duty, draws, makes or issues any bill of exchange or promissory note bearing a date subsequent to that on which such bill or note is actually drawn or made; or

(b) knowing that such bill or note has been so post-dated, endorses, transfers, presents for acceptance or payment, or accepts, pays or receives payment of, such bill or note, or in any manner negotiates the same; or

(c) with the like intent, practices or is concerned in any act, contrivance or device not specially provided for by this Act or any other law for the time being in force, shall be punishable with fine which may extend to one thousand rupees.

CONCLUSION

From above discussion ,it is clear that an unstamped contract /agreement is not taken as evidence in the court of law. An authority as may be specified impound the unstamped contract/agreement/document submitted before him and send to the Collector for determination of proper Stamp Duty and the Penalty. An unstamped Contract/Agreement/Documents is not invalid but taken as evidence only after payment of proper Stamp Duty.