Stamp Duty On Issuance Of Shares In Delhi: Act vs. Circular

Introduction

The Finance Act, 2019 introduced Section 9A to the Indian Stamp Act, 1899 [“Stamp Act”], effective April 1, 2020, to centralize and streamline stamp duty collection on securities transactions. Section 9A of the Stamp Act provided an entirely new mechanism for stamp duty collection on securities transactions and authorised depositories, NSDL and CSDL, to collect stamp duty on behalf of State Governments at the prescribed rate of 0.005% of the total value of the issued shares. Accordingly, companies across India have been paying stamp duty at the aforesaid mentioned rate since April 2020. 

In July 2025, the Department of Revenue, Delhi issued a circular bearing ref. no. F.10 (166)/COS (HQ)/STAMP.BR/2025/93dated 29.07.2025 [“Circular”] clarifying the applicable rate of stamp duty in terms of Article 19 of Schedule 1-A of the Stamp Act, as applicable to the NCT of Delhi, on issuance of shares by the companies with registered offices in the NCT of Delhi. The Circular clarified that issuance of shares would be charged at the rate of 0.1% of the total value of the issued shares and further required all listed and unlisted companies having their registered office within the NCT of Delhi to apply for adjudication. 

Acting on the aforementioned Circular, the office of Additional District Magistrate, Collector of Stamps (HQ), NCT of Delhi issued a formal directive vide letter bearing ref. no. F.10(166)/COS (HQ)/ Stamp Br./2025/181 dated 29.09.2025 [“directive”]. This directive prohibits depositories, NSDL and CSDL, from collecting stamp duty on documents evidencing share titles for companies registered within the NCT of Delhi.

Legislative competence

It is worth noting that the introduction of Section 9A of the Stamp Act has raised a larger issue regarding the constitutional power of the Union to prescribe stamp duty rates on issuance of shares, as the same exclusively vests with the State Legislature in terms of Entry 63 of List II of the Seventh Schedule of the Constitution of India, 1950. Similarly, the directive issued by the NCT of Delhi to the depositories vide letter dated 29.09.2025, refraining them from collecting stamp duty, appears to be in violation of Section 9A(3) [1] of the Stamp Act, which categorically prohibits State Governments to collect stamp duty. The legislative competence of the Union to prescribe a framework for collecting stamp duty is derived from Entry 44 of List III of the Seventh Schedule of the Constitution of India, 1950 and thus, Section 9A(3) of the Stamp Act is constitutional to this extent. 

While the aforesaid legal issues are yet to be judicially reviewed, the companies in Delhi have found themselves at the receiving end of an unsettling administrative practice. Companies across the NCT of Delhi have been issued show-cause notices by the Collector of Stamps calling upon them to apply for adjudication while threatening penal consequences, all without identifying the specific transactions in question or the statutory provisions being invoked. These notices often blur the distinction between adjudication and penal proceedings, creating uncertainty as to the legal basis of such actions. 

Adjudication vs. Penalty: Stamp Act

Furthermore, these notices also undermine the element of voluntariness as envisaged under Section 31 of the Stamp Act. A key aspect of this framework of the Stamp Act is the voluntary nature of adjudication under Section 31. Consequently, any notice directing a party to apply for adjudication runs contrary to the statutory scheme, as it converts a voluntary mechanism into a coercive one. In contrast, the power to impose penalty arises only through a distinct and conditional process. Under Section 33 of the Stamp Act, an instrument may be impounded if it comes before an authority in the discharge of its functions and appears insufficiently stamped. Once impounded, the instrument may be dealt with under Section 38 of the Stamp Act and ultimately Section 40 of the Stamp Act, where the Collector may determine the proper duty and impose penalty. Importantly, the power under Section 40 of the Stamp Act is not standalone, it is triggered only after valid impounding. Therefore, without invoking or satisfying the requirements of Section 33 of the Stamp Act, the imposition of penalty or threatening to impose penalty lacks statutory foundation.

The courts have consistently interpreted the voluntary nature of the aforesaid provisions in a similar vein. The Hon’ble Supreme Court in District Registrar and Collector v. Canara Bank [2]  unequivocally held:

“12. …The scheme of Section 31 involves an element of voluntariness. The person seeking adjudication must have brought the document to the Collector and also applied for such adjudication. The document cannot be compelled to be brought before him by the Collector. Section 33 confers power of impounding a document not duly stamped subject to the document being produced before an authority competent to receive evidence or a person in charge of a public office. It is necessary that the document must have been produced or come before such authority or person in charge in performance of its functions…”

In light of the above, the scope for issuance of any notice under Section 31 of the Stamp Act stands effectively excluded, as the provision is premised entirely on voluntary recourse by the party. Equally, the Collector cannot invoke Section 33 of the Stamp Act in the absence of the document being produced before a competent authority as prescribed under Section 33 of the Stamp Act. This position has been reaffirmed by the Hon’ble Delhi High Court in Kotak Mahindra Bank Ltd. v. Yogesh [3] , wherein it was held that Section 33 of the Act, is attracted only when the original instrument is actually and voluntarily brought before the court. The expression “is produced or comes in the performance of his functions” has been interpreted to mean voluntary production by the party seeking to rely upon the document; the Collector cannot compel such production.

Retrospective enforceability – legally justified?

Perhaps the most troubling aspect of this administrative action is its retrospective nature. Companies are being called upon to pay stamp duty retroactively and face penalties for transactions completed years ago in full compliance with the system as it then existed. When companies issued shares between 2020 and 2025, the stamp duty was paid in accordance with the law then in force. 

It is a trite principle of law that stamp duty must be levied based on the law applicable on the date the instrument was executed. Thus, companies cannot now be compelled to pay additional stamp duty or face penalties for past transactions due to inter-jurisdictional or federal discord.

Interestingly, under Rules 6, 7 and 8 of the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019, all depositories were required to submit monthly returns to State Governments detailing the value of transactions, the rate of stamp duty applied, and the total duty collected. Thus, the Department of Revenue, Delhi had knowledge of the stamp duty being collected by the depositories on issuance of shares at the rate of 0.005% and did not issue any clarifications for over five years. 

It is a well-established principle of law that the imposition of a tax at a higher rate, which effectively functions as a retrospective levy, must be justified by proper and cogent grounds, even if legally permissible. The recent Circular issued by the Department of Revenue, Delhi attempts to apply a higher stamp duty rate of 0.1% retroactively to past transactions. By failing to offer any valid or substantive reasoning for this retroactive application, the actions of the Department appear to be ultra vires, thereby overreaching its administrative and jurisdictional powers.

Key Takeaways

Both the Union and the State appear to have exceeded their legislative competence. The Union exceeded its authority by introducing Section 9A of the Stamp Act to the extent that it prescribes the rate of stamp duty on the transfer of shares. Meanwhile, the State exceeded its authority by directing depositories to refrain from collecting stamp duty and by imposing a higher retrospective tax rate without proper and cogent grounds. 

The Union’s intent to centralize, streamline and standardize the regime for collection of stamp duty on securities transactions has created a friction with the State; however, has not completely failed from an operational standpoint but appear to be inconsistent with its legislative powers.

Amid the conflict between the Union and State governments, companies face significant uncertainty regarding whether to pay stamp duty through central depositories or at a higher rate prescribed by the Department of Revenue, Delhi, through the Stock Holding Corporation of India Limited. Furthermore, companies that previously paid the applicable stamp duty are now facing arbitrary adjudication proceedings and penalty threats for discrepancies attributable entirely to this jurisdictional dispute. 

Consequently, immediate judicial intervention is essential to secure interim relief and protect stakeholders/ companies from undue penal consequences until the dispute is resolved. 

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