Rate of Stamp Duty

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DEEPAK KOHLI

DEEPAK KOHLI (Querist)
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01 December 2008 what will be the rate of stamp duty on debentures for more than 1 year.

Sudharshan

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05 December 2008
In a move that will enable companies to raise debt at a lower cost and help deepen the country’s bond market, the government has slashed stamp duty on Debentures and Promissory Notes.

As per the notification, the new rate for issuance of debenture is 0.05% per annum. The rate would depend on tenor, however, there would be a cap of 0.25% per year or Rs 25 lakh, whichever is lower. This tenor-based rate will lower the cost of raising debt for companies to a large extent.

Duties on P-Notes have been cut by one-fifth. The prevailing rates are 10 paisa for amounts less than Rs 250, 15 paisa for amounts more than Rs 250, but less than Rs 1,000, and 25 paisa for amounts more than Rs 1,000. While debentures attract stamp duty at an average rate of 0.375% ad-valorem (as a percentage of the value of issue), P-Notes attract a duty of 0.05%. The new tenor-based system replaces the slab system that was in prevalence until now. Incidentally, states have started e-payment system for stamp duties which will make it easier for them to administer the new rates.

The Stamp Duty Act empowers the Centre to raise or reduce duty on debentures and P-Notes. However, the onus of reducing the stamp duty on security receipts (SRs) rests with states, which are yet to take a final view on the issue.

The empowered committee of state finance ministers has been asked to look into the matter with a view to create a pan-India market for financial instruments. Uniform rate across the country will end the rate arbitrage which is exploited by corporates preferring some states over others to register deeds or issuing debt. The proposal to reduce stamp duties on various financial instruments finds its origin in the recommendations made by the RH Patil Committee for creating a bond market in the country.

Source: Economic Times

ORDER NO. S.O. 2189(E), DATED 12-9-2008

In exercise of the powers conferred by clause (a) of sub-section (1) of Section 9 of the Indian Stamp Act, 1899 (2 of 1899), the Central Government hereby makes the following amendments in the Order of Government of India in the Ministry of Finance (Department of Revenue) published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii) dated the 28th January, 2004, vide number S.O. 130(E), dated the 28th January, 2004, namely:—

In the said Order in the table, —

(a) for article 27 and the entries relating thereto the following shall be substituted, namely :—

"27. Debenture (whether a mortgage debenture or not), being a marketable security transferable—
(a) by endorsement or by a separate instrument of transfer
(b) by delivery 0.05% per year of the face value of the debenture, subject to the maximum of 0.25% or rupees twenty five lakhs whichever is lower.
Explanation—The term "Debenture" includes any interest coupons attached thereto but the amount of such coupons shall not be included in estimating the duty.

Exemption

A debenture issued by an incorporated company or other body corporate in terms of a registered mortgage-deed, duly stamped in respect of the full amount of debentures to be issued thereunder, whereby the company or body borrowing makes over, in whole or in part, their property to trustees for the benefit of the debenture holders :
Provided that the debentures so issued are expressed to be issued in terms of the said mortgage-deed."

(b) in article 49 for clause (b) and the entries relating thereto, the following shall be substituted, namely :—

“49. PROMISSORY NOTE [as defined by Section 2(22)] —

(b) where payable otherwise than on demand.- One-fifth of the duty as applicable to Bill of Exchange (No. 13 of Schedule 1), for the same amount payable otherwise on demand.”