Introduction

Recently, the Delhi Statement Government has issued a circular clarifying that stamp duty on the issuance of shares shall be levied as per article 19 of Schedule IA of the Indian Stamp Act, 1899, irrespective of the mode of issuance i.e., whether in demat or physical. In this Article, we have looked into the reasons behind the need of issuance of the circular and its impact.

Regulatory Framework

The Indian Stamp Act, 1899 governs the levy of stamp duty on instruments recording certain transactions, ensuring their legal enforceability and generating significant revenue. Under the Constitution of India, the legislative powers relating to stamp duty are divided between the Union and the States through the Seventh Schedule:

• Entry 91 (Union List) empowers Parliament to prescribe rates of stamp duty on specified financial instruments such as bills of exchange, cheques, insurance policies, transfers of shares, and debentures. Although rates are fixed by the Union, the duty is collected and retained by the States under Article 268.
• Entry 63 (State List) authorises State Governments to prescribe rates of stamp duty on all other instruments not covered by Entry 91, including property conveyances, leases, and mortgages. This power allows States to not only set varying rates but also enact state-specific stamp acts to govern such transactions within their jurisdiction.
• Entry 44 (Concurrent List) permits both Union and State Governments to legislate on matters other than rates, such as definitions, procedures, enforcement, and adjudication, with Union law prevailing in case of conflict.

This division ensures a balance—while the Union standardises duty on certain high-value instruments, States retain flexibility and autonomy to regulate and legislate for locally significant transactions.

Prior Amendment Scenario

Prior to the Finance Act, 2019, there was no stamp duty on the transfer of shares in demat . Further, with respect to the issuance of shares, whether in demat or in physical form, the stamp duty was levied as per the rates notified by the respective state governments. Even in the case of demat, the duty was collected as per the rates notified by the state government and is collected as per the methods laid out by them.

Post Amendment Finance Act 2019

With the Finance Act, 2019, the Central Government amended the Indian Stamp Act to streamline the process of levying and collection of stamp duty on the instruments related to issue or transfer of securities, by all the states through common agencies i.e., Stock Exchanges or Clearing Corporations or Depositories, as the case may be. Most importantly, the Finance Act introduced the provisions related to levying stamp duty on transfer of shares or securities in demat, which was not the case earlier. The amendments were aimed at facilitating the levy and administration of stamp duty on securities at one place through one agency, thereby resulting in ease of doing business.

The Amended Act clarified that the depositories or clearing corporations, as the case may be, were under the clear purview of the state government, which exhibits that the states are responsible for collecting and imposing the duty chargeable on the instruments. Further, it stated that transfer and issuance of securities is made via depositories, stamp duty on such transactions shall be charged by depositories on behalf of state government from the issuers at the prescribed rates.

Challenges faced

As discussed hereinbefore that while the Central Government is empowered to levy stamp duty on the transfer of shares but the State Governments are empowered to levy stamp duty on the issuance of the shares. Post Amendments, the depositories, which are authorized to collect stamp duty on the issuance of shares in demat, started to collect such a duty as per the rates introduced by the Finance Act.  The said action resulted in legal dichotomy, as stamp duty on shares being issued in physical form was levied as per the rates notified by the state governments, for example in the state of Delhi, as per Article 19 of Schedule 1A but the depositories were charging rate as per the Finance Act. So on issuance of shares, two different rates were charged i.e., one for physical and one for demat. This inconsistency lead to confusion amongst the stakeholders with respect to rates chargeable over the similar transactions.

Delhi Circular 2025

The Delhi Government circular dated 29th July 2025 (‘Circular’), has emphasized their judicial superiority over the subject of stamp duty on instruments evidencing rights or title to securities. The circular affirms that the State Government will impose and collect duty as per Article 19 of Schedule IA of the Indian Stamp Act 1899 in accordance with Entry 63 of the State List and Entry 44 of the Concurrent List of the Constitution of India on the issuance of shares.

The Circular clarifies that in case of issuance of shares, whether in physical form or in demat, the rate of duty prescribed under Article 19 of Schedule IA of the Indian Stamp Act 1899 i.e., at the rate of 0.1% of the value of shares, shall be levied. So, now the depositories will have to charge stamp duty at the aforesaid rate on shares issued by companies having their registered office in the state of Delhi instead of 0.005%.

It is noted that stamp duty on transfer of shares shall continue to be governed by the Finance Act, 2019, i.e., 0.015%.

Impact of Circular

The implications of this circular can be two fold, first the companies registered in the state of Delhi, may have to shell out more on issuance of shares in form of stamp duty as opposed to what was being paid for last few years, secondly, the circular ensues a risk upon the companies that have already paid duty on shares issued by them at the rate 0.005% instead of 0.1%, as it needs to be seen whether the Delhi Government will exercise its powers under Section 48 of the Indian Stamp Act to recover duty deficit on account of lower duty being charged by depositories on previous issuance of shares.

Conclusion

The Circular settles the issue of varying rates; it also serves as a clear directive reinforcing the State Government’s role in regulating stamp duty on the issuance of shares. The other state governments will definitely take a cue from this and may issue similar clarification in the coming days.