The Revenue Department of Delhi on July 29, 2025 issued a circular (Circular No. F10(166)/COS(HQ)/STAMP.BR/2025/93) (“Circular”) informing companies having their registered offices in the National Capital Territory (NCT) of Delhi (for the purpose of this update, the “Relevant Companies”) that the stamp duty payable on any issuance of shares must be at the rate of 0.1% of the value of the shares, as prescribed under Article 19 of Schedule 1A of the Indian Stamp Act, 1899 (as appliable in the NCT of Delhi) (“State Prescribed Stamp Duty”).

The Circular further directs all listed and unlisted Relevant Companies which have not paid the State Prescribed Stamp Duty on issuance of shares to apply for adjudication of stamp duty, irrespective of whether the issuance is in a physical form or dematerialized form. The Revenue Department has now issued a letter to the National Securities Depository Limited (“NSDL”) and the Central Depository Services (India) Limited (“CDSL”) on September 29, 2025, instructing them not to collect stamp duty from the Relevant Companies on issuance of shares in dematerialized form under the Indian Stamp Act, 1899, since they are required to pay the State Prescribed Stamp Duty (“Letter”).

Grounds for the Circular

The Circular clarifies that the legal grounds for its issuance arises from the Seventh Schedule of the Constitution of India (the “Constitution”), which sets out the union list, state list, and concurrent list for the division of power between the Central and State Governments. Item 91 of the Union List grants the Central Government the authority to prescribe rates for, and levy stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. On the other hand, Item 63 of the State List empowers the State Governments to prescribe rates for, and levy stamp duty in respect of documents other than those specified in List I. Accordingly, State Governments have been empowered to impose and collect stamp duty on the issuance of shares for documents that evidence the right or title to shares of a company.

Applicability of the Circular on Issuance of Shares in Dematerialised Form

While the power of State governments to levy stamp duty on share certificates, being physical, documents evidencing title to shares, is clear, there appears to be a dichotomy of opinion on the ability of the State Government to levy stamp duty on the issuance of shares in dematerialised form.  Pursuant to the Finance Act, 2019 (which amended the Indian Stamp Act, 1899 (“Stamp Act”) read with the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 (“Demat Stamp Rules”), stamp duty on issuance of shares in dematerialised form is collected by depositories in accordance with Section 9-A of the Stamp Act, and the stamp duty so collected is to be transferred to the relevant State Government. The depositories collect a stamp duty of 0.005% of the value of the shares in accordance with Schedule I of the Stamp Act (“Centre Prescribed Stamp Duty”). 

The rationale for this variance in the dematerialized issuance, basis industry practice, seems to be that issuance in a dematerialized form does not involve issuance of any physical documents, being instruments evidencing title, within the relevant state. The evidence of such ownership lies in the electronic record, a beneficiary position (BENPOS) statement of the company,  which is registered and maintained at the central level.

However, it is also argued that pursuant to Item 63 of the State List, it is only the State Government that can prescribe the rate of stamp duty for documents evidencing title to shares (whether such document is a physically executed share certificate or an electronic record of ownership in the form of the concerned company’s BENPOS statement).

Concluding Thoughts

Given that the Stamp Act entitles State Governments to the proceeds of the stamp duty levied on dematerialized issuance of shares, it appears that the question is not whether the State Governments can levy stamp duty on issuance of shares in dematerialised form, but whether State Governments should also be entitled to prescribe the rate of stamp duty that can be levied on such issuance. This necessitates a judicial examination of whether issuance of shares in dematerialised form can be brought within the State Government’s power to prescribe rates of stamp duty for dematerialized issuances under Item 63 of the State List, and accordingly, the constitutionality of Section 9-A of the Stamp Act, the Demat Stamp Rules and the Circular.

While we await guidance from the judiciary on the powers of the Central Government and the State Governments in relation to matters of issuance of shares by companies in dematerialised form, the Relevant Companies will have to apply for adjudication of stamp duty for any share issuances for which they have only paid the Centre Prescribed Stamp Duty on the shares (whether in a physical form or dematerialized form). This requirement becomes significantly cumbersome considering that since October 1, 2024 (except for the period between February 12, 2025 and June 30, 2025) all companies other than small companies are required to issue shares only in dematerialised form as per Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Going forward, the Letter clarifies that the Relevant Companies can make payment of the State Prescribed Stamp Duty on the portal of the Stock Holding Corporation of India Limited, and has directed the NSDL and CDSL to stop collecting stamp duty on issuance of shares by the Relevant Companies.

It remains to be seen whether other states will follow in the steps of the Revenue Department of Delhi and require companies with registered offices in their jurisdiction to pay stamp duty on issuance of shares at the rates that prescribed by such states.

Please find attached a copy of the Notice and Circular, here.

This update has been contributed by Anindya Ghosh (Partner), Jaidrath Zaveri (Principal Associate) and Aradhana Pandit (Associate).

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