Summary: This article examines the legality of recent circulars issued by the Delhi government, which includes imposing a 0.1% stamp duty on dematerialised share issuances in Delhi (which is contrary to the centrally prescribed 0.005% rate).
Introduction
The Indian Stamp Act, 1899 (“ISA”), as amended by the Finance Act, 2019 (“2019 Amendments”), provides that stamp duty on dematerialised shares issued by companies will be collected by[1] depositories (National Securities Depository Limited or Central Depository Services (India) Limited (collectively, “Depositories”)) on behalf of state governments[2] at 0.005% of the total value of such shares issued[3]. Since implementation of the 2019 Amendments, companies across India have been paying stamp duty on dematerialised share issuances at this rate.
It is worthwhile to note that the 2019 Amendments created a legal fiction deeming demat transfers and issuances as ‘instruments’ for stamp duty, even though demat shares do not require stamping.[4] Previously, stamp duty on demat share transfers was exempt as no ‘instrument’ existed (in case of dematerialised shares) for levying stamp duty.[5]
Stamp duty on physical share issuances is payable at rates specified by the relevant state government, as physical share certificates qualify as ‘instrument’ under the ISA/ state stamp duty legislation. Article 19 of Schedule I-A of ISA (as applicable to NCT of Delhi) prescribes a rate of 0.1% of share value on ‘certificate or other document, evidencing the right or title to any shares, scrip or stock of any incorporated company’.[6]
On July 29, 2025, Department of Revenue, Delhi (“DRD”), instructed companies registered within Delhi to remit stamp duty at the rate of 0.1% of the value of shares issued by them for all share issuances (whether physical or dematerialised).[7] Similarly, on September 29, 2025, DRD issued a letter[8] to the Depositories stating that the collection of stamp duty on share issuances within Delhi (whether physical or dematerialised) falls exclusively under the jurisdiction of the state. The letter instructed Depositories to refrain from collecting stamp duty on share issuances by companies registered in Delhi, and referred such companies to the e-stamping portal of the Stock Holding Corporation of India Limited (“SHCIL”) for payment of stamp duty.
It may be noted that under Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 (“ISA Rules”), framed pursuant to the 2019 Amendments, Depositories are required to collect stamp duty on behalf of states for demat share issuances and transfer the same to states.[9]
Two issues arise out of DRD’s directives: whether state governments can (a) determine stamp duty rates for demat share issuances, and (b) prescribe a procedure for collection of stamp duty for demat share issuances in variance with the procedure under ISA Rules. This blog examines these issues.
Power of Delhi government to determine stamp rate
The foundation of the first issue primarily resides in allocation of legislative competence between union and state governments under the Constitution of India. The seventh schedule to the Constitution delineates the union list, state list, and concurrent list for distribution of legislative powers between union and state governments.
Entry 91 of the union list empowers the union government to prescribe stamp duty rates on transfer of shares.[10] Whereas entry 63 of the state list empowers state governments to prescribe rates for and levy stamp duty on documents ‘other than those enumerated in [the union list]’.[11] From this, it can be inferred that state governments have sole power to impose and collect stamp duty on issuance of shares, to the extent it relates to ‘documents’ that evidence the right or title to shares of a company. The current issue surrounding stamp duty on issuance of demat shares particularly arises over whether issuance of such shares would constitute a ‘document’ under entry 63 of the state list.
Arguments for both sides can be made on this issue. On one hand, issuance of dematerialised shares does not entail generation of any corporeal or physical instrument evidencing title situated within the territorial limits of a particular state. Judicial support can be drawn for this argument. In Jry Investments Private Limited v. Deccan Leafine Services Ltd.,[12] the Bombay High court observed that ‘It would, however, be impossible to hold that such goods in a dematerialised form are capable of delivery that is by handing over de facto possession. Since such goods are invisible and intangible it would be impossible and in any case difficult to fix the fact of time and place of delivery. [..] Dematerialised shares cannot be delivered physically nor can physical possession of such dematerialised shares be handed over.’ Therefore, it would appear that demat share issuances would not fall under entry 63 of the state list, as they do not constitute a ‘document’, implying that state governments are not empowered to determine stamp duty rates for demat issuances.
Conversely, under entry 63 of the state list, state governments are empowered to determine stamp duty rates applicable to all instruments, except for duty on items listed in entry 91 of the union list. It may be noted that evidence of ownership of dematerialised shares exists solely in electronic records, specifically a beneficiary position (BENPOS) statement of the issuing company. Section 6 of the Information Technology Act, 2000, stipulates that ‘the filing of any document … shall be deemed to have been satisfied if such filing, … is effected by means of such electronic form …’. The Income Tax Act, 1961[13], also states that ‘document’ includes an electronic record as defined in the Information Technology Act, 2000[14].
Thus, it can be argued that issuance of shares in demat form would constitute an electronic document. One limitation to this argument is that even under the existing mechanism, stamp duty is to be paid to Depositories before the issuance of dematerialised shares is reflected in Depositories’ records, meaning that stamp duty is paid on a legal fiction and not on the BENPOS statement/ any other document evidencing title to shares. This is also reflected in Section 8A(a) of ISA, which states that while stamp duty on demat issuances is payable, ‘such securities need not be stamped’.
Power of Delhi government to prescribe procedure for collection of stamp duty
Section 9A(1)(c) of the ISA provides that collection of stamp duty by Depositories on behalf of state governments must be done ‘in the manner as the Central Government may, by rules, provide’. The ISA Rules[15] have been framed by the central government for this purpose, and provide that stamp-duty leviable under Section 9A(1)(c) of ISA is to be collected from the issuer by a Depository before executing any transaction in the depository system.
Entry 44[16] of the concurrent list allows both central and state governments to legislate on matters relating to stamp duty, which inter alia includes procedure for collecting duty. However, under Article 254 of the Constitution, central law prevails in case of conflict between central and state laws on concurrent subjects. This implies that only the central government has power to determine procedure for collection of stamp duty on demat issuances after the 2019 Amendments.
While the Delhi government has prescribed the rate of 0.1% to be applicable on dematerialised share issuances, in our view, the collection of this duty can only be done through Depositories, in accordance with the ISA Rules. It may be noted that Depositories are till date applying 0.005% rate for all issuances in all states (in line with the rate prescribed by the central government in 2019).[17]
Consequently, the DRD directives, to the extent they modify this procedure and direct payment of stamp duty through the SHCIL portal, appear to be ultra vires the ISA and not within constitutional competence of the state government. For resolving this issue, alignment needs to be reached between Depositories and the government of Delhi on the percentage of stamp duty.
Conclusion
The DRD directives have generated a disparity between stamp rates stipulated by the central government and those mandated by the Delhi government, leaving companies in a state of ambiguity on whether to remit the duty automatically calculated via the applicable Depository’s portal, or pay higher duty prescribed by the Delhi government through the SHCIL portal. Further, as per these directives, companies that have already paid stamp duty on share issuances via Depositories will also be compelled to initiate stamp duty adjudication proceedings in respect of such issuances. This defeats the entire object of amending the ISA in 2019, which was to prevent multiple incidences of taxation and ensuring that no additional duty is collected by states on any secondary record of transaction, associated with a transaction on which the depository/ stock exchange has been authorised to collect stamp duty.[18]
Only a judicial examination of whether issuance of dematerialised shares fall within state government’s constitutional competence to prescribe stamp duty rates under entry 63 of the state list, can resolve the legal dilemma. Until such a clarification emerges, other states may also introduce similar circulars and prescribe varied rates for stamp duty collection on demat share issuances.
For further information, please contact:
Megha Bharghava, Partner, Cyril Amarchand Mangaldas
megha.bhargava@cyrilshroff.com
[1] Section 9A(1)(c), Indian Stamp Act, 1899
[2] Rule 6, Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019
[3] Article 56(A)(a), Schedule I, Indian Stamp Act, 1899
[4] This is evidenced in Section 8A(a) of the ISA which stipulates that ‘Notwithstanding anything contained in this Act or any other law for the time being in force, an issuer… will be chargeable with duty on the total amount of securities issued by it and such securities need not be stamped.
[5] Erstwhile Section 8A(a) of the ISA (before the 2019 Amendments), which was titled ‘Securities dealt in depository not liable to stamp duty’ and provided that ‘the transfer of [..] beneficial ownership of securities, dealt with by a depository [..] shall not be liable to duty under this Act or any other law for the time being in force.’
[6] Article 19, Schedule I-A, Indian Stamp Act, 1899 (as applicable to Delhi).
[7] Circular no. F10(166)/COS(HQ)/STAMP.BR/2025/93 dated July 29, 2025, issued by the Revenue Department of Delhi.
[8] Letter dated 29/09/2025 regarding the rate of stamp duty in terms of Article 19 of the Schedule I-A of Indian Stamp Act, 1899 as applicable to Delhi, on certificate or other document, evidencing the right or title to any shares, scrip or stock of any incorporated company.
[9] Rule 7, Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019.
[10] Entry 91, List I, Schedule VII, Constitution of India.
[11] Entry 63, List II, Schedule VII, Constitution of India.
[12] Jry Investments Private Limited v. Deccan Leafine Services Ltd, 2003 SCC Online BOM 1134
[13] Section 2(22AA), Income Tax Act, 1961
[14] As per Section (2)(i)(t) of Information Technology Act, 2000 electronic record means data, record or data generated, image or sound stored, received or sent in an electronic form or micro-film or computer generated micro fiche.
[15] Rule 6, Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019
[16] Entry 44, List III, Schedule VII, Constitution of India.
[17] Please see Stamp Duty Calculator on NSDL website. The website contains the following disclaimer for the calculator ‘The above calculator is only to enables quick and easy access to calculate estimated stamp duty and does not purport to give correct stamp duty calculation in all circumstances. It is advised that for payment of stamp duty, the exact calculation may be made as per the provisions contained in the relevant Acts, Rules, etc. NSDL shall not be held responsible for any kinds of claims, losses arising out of the use of the calculated stamp duty.’
[18] Press Information Bureau, Implementation of Amendments in the Indian Stamp Act, 1899 and Rules made from 1st July, 2020 for Rationalized Collection Mechanism of Stamp Duty across India with respect to Securities Market Instruments, Posted on 30 June 2020.
