Stamp Duty on Share Transfer — Rates, Rules & Exemptions in India

What Is Stamp Duty on Share Transfer?

Stamp duty on share transfer is a tax levied by the government on instruments (documents) used for transferring ownership of shares from one person to another. It is governed by the Indian Stamp Act, 1899, which was significantly amended in 2020 to bring uniformity across states for securities market transactions.

Stamp duty applies when shares change hands through a transfer — that is, a voluntary sale or gift between a living transferor and transferee. It is important to distinguish this from transmission, which occurs by operation of law (such as inheritance after death), and which is generally exempt from stamp duty.

Understanding stamp duty is essential for anyone involved in buying, selling, or transferring shares — whether through the stock exchange, off-market transfers, or physical share transfer deeds. Non-compliance can result in the transfer being rejected by the company and penalties under the Stamp Act.

Indian Stamp Act Amendments 2020 — What Changed

The Finance Act, 2019 introduced significant amendments to the Indian Stamp Act, 1899, which came into effect on 1st July 2020. These changes fundamentally altered how stamp duty is collected on securities market transactions:

Before July 2020

• Stamp duty rates varied from state to state, creating arbitrage and confusion.
• Stamp duty on demat transactions was paid based on the state where the registered office of the transferee's broker was located.
• Different states charged different rates, leading to “stamp duty shopping”.
• Collection and enforcement were inconsistent.

After July 2020

• Uniform rates across India for all securities market transactions (on-market, off-market, mutual funds, etc.).
• Centralised collection by stock exchanges, clearing corporations, and depositories on behalf of state governments.
• Stamp duty is collected at the point of transaction and remitted to the state of the buyer’s registered address.
• No more state-wise variations for listed securities transactions.
• Physical share transfers still governed by state stamp duty rates, but most states follow the 0.25% standard.

Who Pays Stamp Duty on Share Transfer?

The question of who pays stamp duty on transfer of shares depends on the type of transaction:

• On-market (stock exchange) transactions — The buyer pays stamp duty. It is automatically deducted by the stock exchange/clearing corporation from the buyer's trade value.
• Off-market demat transfers — The transferee (buyer/recipient) bears the stamp duty. The depository (NSDL/CDSL) collects it at the time of processing the transfer instruction.
• Physical share transfers — The transferee (buyer) is responsible for ensuring adequate stamp duty is affixed on the share transfer deed (Form SH-4). The stamps must be affixed before or at the time of executing the deed.
• Gift of shares — The donee (recipient) bears the stamp duty, calculated on the market value of the shares at the time of transfer.

Stamp Duty Exemptions — When You Do NOT Pay

Several situations are exempt from stamp duty on share transfer:

1. Transmission to Legal Heirs (Death)

When shares are transmitted to the legal heirs of a deceased shareholder, no stamp duty is payable. Transmission is not a “transfer” under the Indian Stamp Act — it occurs by operation of law (succession), not by a voluntary act between parties. This applies to both physical and demat shares.

This is a significant benefit for families inheriting shares. Our share transmission service handles the entire process for legal heirs.

2. Transmission Due to Insolvency

Shares transmitted as part of insolvency proceedings are also exempt, as the transfer occurs by court order rather than voluntary agreement.

3. Allotment of New Shares

When a company allots new shares (IPO, rights issue, bonus shares), no stamp duty is payable on the allotment itself. Stamp duty on the share certificate (if issued in physical form) may apply separately.

4. Dematerialisation and Rematerialisation

Converting physical shares to demat (dematerialisation) or demat to physical (rematerialisation) does not attract stamp duty, as there is no change in ownership — only a change in the form of holding.

Share Transfer Deed Format (Form SH-4)

For physical share transfers, the share transfer deed format is prescribed under the Companies Act, 2013, in Form SH-4. This form must be properly stamped and executed for the company/RTA to register the transfer. The key contents of a share transfer deed are:

• Name of the company whose shares are being transferred.
• Description of shares — number of shares, class (equity/preference), certificate number, distinctive numbers (from–to), and folio number.
• Face value and consideration amount (the price paid for the shares).
• Transferor details — name, address, and signature of the person transferring the shares.
• Transferee details — name, father’s/husband’s name, address, occupation, and signature of the person receiving the shares.
• Witness signatures — at least one witness for each party.
• Revenue stamps — affixed at 0.25% of the consideration or market value, whichever is higher.
• Date of execution.

Stamp Duty on On-Market vs Off-Market Transfers

For investors holding shares in demat form, it is important to understand the stamp duty implications of different types of transfers:

On-Market Transfers (Stock Exchange)

When you buy or sell shares through a stock exchange (NSE, BSE), stamp duty is automatically collected from the buyer at 0.015% for delivery trades. It appears as a separate line item in your contract note. You do not need to take any additional action — the exchange handles everything.

Off-Market Transfers (DP-to-DP)

Off-market transfers are direct transfers between two demat accounts without going through the stock exchange. These are used for gifting shares, transferring between family members’ accounts, or settling private share sale transactions. Stamp duty is 0.015% of the transfer value, collected by the depository.

Physical Transfers

Physical share transfers using Form SH-4 attract a higher stamp duty of 0.25%. Since SEBI has mandated demat-only trading for listed shares, physical transfers are now mainly relevant for private/unlisted company shares or for transferring old physical shares that have not yet been dematerialised. Learn more about how to sell physical shares.

Penalty for Non-Payment of Stamp Duty

Failing to pay proper stamp duty on share transfers can have serious consequences:

• Transfer rejected — The company or RTA will refuse to register the transfer if the share transfer deed is not properly stamped. The transfer will not be reflected in the company’s records.
• Inadmissible in court — Under Section 35 of the Indian Stamp Act, an unstamped or insufficiently stamped instrument is inadmissible as evidence in any court of law or before any authority. This means you cannot use it to prove ownership.
• Penalty up to 10x — If deficient stamping is discovered, the penalty can be up to 10 times the deficient stamp duty amount, in addition to the original duty payable.
• Impounding — Any person, officer, or authority who comes across an unstamped document is required to impound it and send it to the Collector of Stamps for adjudication.