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Basis of taxation

Stamp duty is chargeable on instruments and not on transactions.

An unstamped or insufficiently stamped instrument is not admissible as evidence in a court of law, nor will it be acted upon by a public officer.

Assessment and payment of stamp duty can be made electronically via the Stamp Assessment and Payment System.

Rates of duty

The rates of duty vary according to the nature of the instruments and transacted values. Generally, transfer of properties can give rise to significant stamp duty:

a. Properties (other than shares, stock or marketable securities)

1. Other than foreign companies, non-citizens and non-permanent residents

2. Foreign companies, non-citizens and non-permanent residents

Flat rate stamp duty of RM4 per RM100 or part thereof (w.e.f 1 January 2024)

b. Non-listed shares, stock or marketable securities

RM3 for every RM1,000 or any fraction thereof based on consideration or value, whichever is greater. The Stamp Office generally adopts one of the 2 methods for valuation of unlisted ordinary shares for purposes of stamp duty:

-    net tangible assets; or -    sale consideration.

c. Shares or stock listed on Bursa Malaysia

RM1.50 for every RM1,000 or any fraction thereof based on the transaction value.  However, stamp duty in excess of 0.1% is remitted for instruments of contract notes executed on or before 13 July 2023 until 12 July 2028, with maximum stamp duty payable of RM1,000 per contract note.

d. Listed marketable securities

RM1 for every RM1,000 or any fraction thereof based on the transaction value, with maximum stamp duty payable of RM200 per contract note.

e. Service Agreements and Loan Agreements

Stamp duty of 0.5% on the value of the services / loans. However, stamp duty may be remitted in excess of 0.1% for the following instruments:

1.   Service agreement

2.   Loan agreement / loan instrument

Malaysian Ringgit loan agreements generally attract stamp duty at 0.5% However, a reduced stamp duty liability of 0.1% is available for Malaysian Ringgit loan agreements or instruments without security and repayable on demand or in single bullet repayment.

Stamp duty on foreign currency loan agreements is generally capped at RM2,000.  W.e.f 1 January 2024, this cap is removed.

Instruments executed in Malaysia which are chargeable with duty must be stamped within 30 days from the date of execution. When the instruments are executed outside Malaysia, they must be stamped within 30 days after they have first been received in Malaysia.

The penalty imposed for late stamping varies based on the period of delay. The maximum penalty is RM100 or 20% of the deficient duty, whichever is higher.

Relief / Exemption / Remission from stamp duty

Examples of the exemptions, remissions or reliefs of stamp duty available are as follows:

1.  Merger and acquisition

Relief on the transfer of the undertakings or shares under a scheme of reconstruction or amalgamation of companies (conditions apply).

• Relief on the transfer of property (excludes transfer of business) or shares between associated companies , where either company owns 90% or more of the other company, or where a third company owns 90% or more of both associated companies (conditions apply).

2.   Financing instrument

• Stamp duty exemption on loan / financing agreements executed from 1 January 2022 to 31 December 2026 between MSMEs and investors for funds raised on a peer-to-peer platform registered and recognised by the Securities Commission (SC). 
• Stamp duty exemption on instrument of agreement for a loan or financing in relation to a Micro Financing Scheme (approved by the National Small and Medium Enterprise Development Council) between a borrower and a participating bank or financial institution.
• Stamp duty exemption on all loan or financing instruments in relation to the Professional Service Fund for an amount up to RM50,000 between a borrower and Bank Simpanan Nasional.
• Stamp duty exemption on all instruments of an Asset Sale Agreement & Asset Lease Agreement executed between a customer and a financier made under Syariah law principles for renewing any Islamic overdraft/revolving financing facility , provided the instrument for existing facility is duly stamped.
• Stamp duty on any instruments of an Asset Lease Agreement executed between a customer and a financier made under the Syariah principles for rescheduling or restructuring any existing Islamic financing facility is remitted to the extent of the duty that would be payable on the balance of the principal amount of the existing Islamic financing facility, provided the instrument for existing Islamic financing facility has been duly stamped.
• Stamp duty exemption on all instruments relating to the purchase of property by any financier for the purpose of leaseback under the principles of Syariah or any instrument by which the financier shall assume the contractual obligations of a customer under a principal sale and purchase agreement.
• Stamp duty exemption on loan or financing agreements executed from 1 July 2021 to 31 December 2024 in relation to restructuring or rescheduling of business loans due to the inability of the borrower to comply with existing repayment schedule consequent to deteriorating financial conditions.

3.   Instrument of transfer

• Remission of 50% of stamp duty chargeable on the instrument of transfer of immovable property operating as voluntary disposition between parent(s) and child and vice versa, executed before 1 April 2023 and   provided that the recipient(s) is a Malaysian citizen. 
• Stamp duty exemption on the instrument of transfer of property (executed from 1 April 2023) by way of love and affection between parents and children, grandparents and grandchildren, limited to the first RM1 million of the property’s value, provided the recipients are Malaysian citizens. The balance of the property’s value is given 50% remission on the ad valorem stamp duty imposed. 
• Exemption for instruments of transfer of immovable property operating as voluntary disposition between husband and wife.
• Stamp duty exemption on all instruments of transfer of land, business, asset and share in relation to the conversion of a conventional partnership or a private company to be a limited liability partnership .
• RM10 fixed duty for instrument of transfer of any property by way of release or renunciation by a beneficiary of a deceased estate to another beneficiary entitled under the same estate (w.e.f 1 January 2024).

4.  Purchase of first residential property

• Stamp duty exemption on the instrument of transfer and loan agreement for purchase of first residential property through the Malaysian Home Ownership Initiative (i-Miliki) under the Home Ownership Programme 2022/2023.

Note 1: Purchaser or co-purchasers are Malaysian citizens

5.  Abandoned housing projects

•  Stamp duty exemption on instruments executed by a rescuing contractor or a developer approved by the Minister of Housing and Local Government to carry on rehabilitation works for an abandoned project . The instruments are loan agreements approved by the approved financier and instruments of transfer for the purpose of transferring revived residential property in relation to the abandoned project which are executed by 31 December 2025.
• Stamp duty exemption on instruments executed by an original purchaser , whose name is stated in the Sale and Purchase Agreement in relation to an abandoned project , or his beneficiary. The instruments are loan agreements approved by the approved financier and instruments of transfer which are executed by 31 December 2025.

6.   Capital market

• Stamp duty exemption on specified instruments for the purpose of a securitisation transaction.
• Stamp duty exemption on all instruments relating to the issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase debentures or Islamic securities approved by the SC and the transfer of such debentures or Islamic securities.
• Stamp duty in excess of RM200 is remitted for instruments of contract notes relating to the sale of shares, stocks or marketable securities  in companies incorporated in Malaysia or elsewhere between a local broker and an authorised nominee on behalf of a foreign broker.
• Stamp duty exemption on contract notes for sale and purchase transaction of structured warrant or exchange-traded fund approved by the SC, executed by 31 December 2025.

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INTRODUCTION

Stamp duties are imposed on instruments and not transactions. An instrument is defined as any written document and in general,- stamp duty is levied on legal, commercial and financial instruments. The person liable to pay stamp duty is set out in the Third Schedule of Stamp Act 1949. The Assessment and Collection of Stamp Duties is sanctioned by statutory law now described as the Stamp Act 1949.

TYPES OF DUTY

1. Ad Valorem Duty

The rate of duty varies according to the nature of the instruments and the consideration stipulated in the instruments or the market value of the property. The imposition of ad valorem duty (that is, according to the value) is on:

• Instruments of transfer (implementing a sale or gift) of property including marketable securities (meaning loan stocks and shares of public companies listed on the Bursa Malaysia Berhad), shares of other companies and of non-tangible property (e.g. book debts, benefits to legal rights and goodwill).
• Instruments creating interests in property (e.g. Tenancies and Statutory Leases)
• Instruments of security for monies, including instruments creating contracts for payment of monies or obligation for payment of monies (generally described as `Bond`)
• Certain capital market instruments (e.g. Contract Notes)

2. Fixed Duty

Duty is imposed without any relation to the consideration paid or amount stated in the instrument. The imposition of fixed duty is on:

• A number of other legal, commercial, mercantile or capital market instruments (e.g. Power or Letter of Attorney, Articles of Association of a Company, Promissory Notes, Policy of Insurance etc); and
• A duplicate or a subsidiary or a collateral instrument when it can be shown that the original or principal or primary instrument has been duly stamped.

INSTRUMENTS LIABLE TO STAMP DUTY

Instruments liable to stamp duty are those listed in the First Schedule of the  Stamp Act 1949 .

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What Is a Stamp Duty?

Understanding a stamp duty.

• History of Stamp Duties in the U.S.

What is a transfer tax?

Are stamp taxes tax deductible, are tax stamps collectible.

• Government & Policy

Stamp Duty: Meaning, History in the U.S., FAQs

A stamp duty is a tax that governments place on legal documents, usually involving the transfer of real estate or other assets. Governments can impose stamp duties, also known as stamp taxes, on documents that are needed to legally record those types of transactions, as well as on documents recording marriages, military commissions, copyrights, patents, and so forth.

Historically, governments have used stamp taxes as a way to raise money to fund their activities. Stamp duties are thought to have originated in Spain in the early 17th century. They were called “stamp” duties because a physical stamp was put on the document as proof that it had been officially recorded and the tax liability had been paid.

Key Takeaways

• A stamp duty—also known as a stamp tax or documentary stamp tax—is a tax that a government levies on documents that are required to legally record certain types of transactions.
• Governments have imposed stamp duties on a variety of documents, including those related to the sale or transfer of real estate, patents, securities, and copyrights.
• Governments use these taxes as a source of revenue to fund government programs and activities. In some cases, they are referred to as revenue stamps.

The stamp duty is also known as a documentary stamp tax. Governments around the world levy these taxes on a variety of legally recorded documents.

Before income and consumption taxes provided governments with a substantial tax base, they raised revenue primarily through property taxes , import duties , and stamp duties on financial transactions. 

As income and consumption have grown, it might have made sense to do away with stamp duties. So why do we still have them in many places? Simply put, they provide a steady stream of income for governments.

Today, however, stamp duties apply to far less than the broad category of “financial transactions.” They do remain on properties, though. They are often levied when real estate is transferred or sold; additionally, many states impose taxes on mortgages and other instruments securing loans against real estate.

While the United States once imposed stamp taxes on a variety of transactional documents, there is no federal stamp tax today, except in very limited circumstances. One is a tax on the transfer of certain firearms and accessories that are subject to the National Firearms Act.

The U.S. Fish and Wildlife Service also requires waterfowl hunters age 16 or older to purchase Federal Duck Stamps, which serve as both a hunting license and a free pass for any national wildlife refuge that otherwise charges an entry fee. The agency says that “nearly all of the proceeds are used to conserve habitat for birds and other wildlife, birders, nature photographers, and other outdoor enthusiasts.” Some states also issue their own versions of duck stamps for similar conservation purposes.

Otherwise, only state and local governments currently impose stamp taxes in the United States. In addition to various legal documents, “48 states and the District of Columbia, Guam, and Puerto Rico currently require a tax stamp affixed to tobacco products,” according to the Centers for Disease Control and Prevention.

History of Stamp Duties in the United States

By the 17th century, governments had introduced stamp duties throughout Europe. Over the next century, they became a common form of taxation in the Netherlands, France, Denmark, Prussia, and England. 

In 1765, the British parliament passed a stamp tax to be imposed on American colonists, requiring them to pay tax on all printed papers, such as licenses, newspapers, ships’ papers, and even playing cards. The British government said the funds collected from stamp duties were needed to pay for positioning troops in certain locations of America and to pay for the massive war debt it had incurred during the Seven Years’ War.

American colonists were outraged by the imposition of the taxes, which they believed were a deliberate attempt by Britain to control commerce and curtail colonial independence. The Stamp Tax was enacted without the knowledge of or input from the colonies, becoming a prime example of taxation without representation . The Stamp Act led to the first concentrated effort by the colonists to resist British authority and became a milestone event leading up to the American Revolution.

Stamp taxes have endured much longer in Britain itself. Today, the United Kingdom imposes a stamp duty land tax (SDLT) on home purchases, although homes under a certain value are not subject to it. For example, the current threshold for residential properties is £125,000. However, first-time homebuyers get a break—their threshold is £500,000.

A transfer tax is a type of stamp tax that some state and local governments impose when the deed or title to a home or other property changes hands. It is often included in the long list of closing costs .

Not directly, although the law does offer a tax break on some of them. As the Internal Revenue Service (IRS) explains, in the case of home purchases, “You can’t deduct transfer taxes and similar taxes and charges on the sale of a personal home. If you are the buyer and you pay them, include them in the cost basis of the property. If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale.”

Yes, some postage stamp collectors also collect tax stamps, often referred to in the hobby as “revenue stamps.”

The Bottom Line

A stamp duty, also known as a stamp tax, is a tax imposed on certain transactions, typically by state or local governments. In many cases, a stamp duty will represent a charge for recording the transfer of real estate or other assets from seller to buyer, but it can also be levied on other types of documents and even some products, such as cigarettes. Stamp taxes were a major factor leading to the American Revolution.

Library of Congress. “ United States Code: Machine Guns, Destructive Devices, and Certain Other Firearms, 26 U.S.C. §§ 5801–5872 (Suppl. 5 1964). ”

PwC, Worldwide Tax Summaries. “ United States: Corporate—Other Taxes .”

U.S. Fish and Wildlife Service. “ Duck Stamps .”

U.S. Centers for Disease Control and Prevention. “ STATE System Tax Stamp Fact Sheet .”

Gilder Lehrman Institute of American History. “ The Stamp Act, 1765 .”

Gov.UK. “ Stamp Duty Land Tax .”

Internal Revenue Service. “ Publication 530: Tax Information for Homeowners ,” Page 4.

Linn’s Stamp News. “ Revenue Stamps Pay Tax Instead of Postage .”

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• Business tax
• Stamp duty and other tax on property
• SDLT on specific transactions

Stamp Duty Land Tax on Leasehold sales

Find out about Stamp Duty Land Tax (SDLT) on leasehold properties.

You do not pay SDLT if you buy a property in:

• Scotland from 1 April 2015 — you pay Land and Buildings Transaction Tax
• Wales from 1 April 2018 — you pay Land Transaction Tax (LTT)

The amount of SDLT you pay when you buy a leasehold property, depends on if it’s an existing lease (an assigned lease) or a new one.

Assigned leases

Residential and non-residential properties are leasehold or freehold.

A developer builds some flats and sells them on 99 year leases. You buy one of the 99 year leases and sell it when it still has 88 years to run. You assign the lease to the new owner for the rest of the period.

The new owner pays a lump sum for the assignment of the lease and pays SDLT on this amount.

In most cases, use the same rates and thresholds to work out the amount of SDLT as you would if you bought a freehold property (residential or non-residential freehold).

Filling in the SDLT return

The rules for filling in the SDLT return for an assigned lease are the same as the rules for a freehold property. Fill in a return if the sale price is £40,000 or more, even if no SDLT is due.

If you buy a new lease, the SDLT you pay depends on the amount of:

• the premium
• any rent due

New leases with a nominal rent

When you buy a new lease and pay a premium, but only a nominal rent (a peppercorn for example), calculate SDLT on the amount of the premium only. This applies for both a residential or non-residential lease.

Calculate the SDLT on the premium in the same way as you would for the sale price of a freehold property. Fill in an SDLT return if the sale price is £40,000 or more, even if no SDLT is due. If the lease is less than 7 years and no tax is due, you do not need to do a return.

New leases with more than a nominal rent

If you buy a new lease, pay a premium and more than a nominal rent, work out the SDLT on:

• the value of rent payable over the term of the lease at present day prices (net present value ( NPV ))

Normally, you only pay SDLT on the rent if it’s high. It depends on the length of the lease, for example £4,500 a year for a 99 year lease.

Calculations for residential or non-residential leases

There are different rules to work out the SDLT on new residential and non-residential leases.

Residential property is:

• a building used or suitable to use as a private home
• a building adapted to use as a private home
• land that’s the garden or grounds of a private home (including a right or interest in that land)

If you buy 6 or more separate properties in one transaction, it counts as non-residential.

New residential leases

When you buy a new residential lease, work out both the amount due on the premium and on the rent. Add them together for the total amount due.

SDLT on the premium

Work out the SDLT on the premium as if it was the sale price of a freehold property. Do not take into account the level of the rent due under the lease.

You pay a premium of £275,000 on a new residential lease, you pay  SDLT  at the rate of 0% on the first £250,000 and 5% on the rest (£25,000). The amount you pay is £1,250.

If you purchased a new residential lease before 23 September 2022, different SDLT rates and thresholds applied .

The NPV of the rent

If the NPV of the rent is more than the SDLT NPV threshold on residential property, the buyer pays SDLT on the rent in addition to any SDLT due on the premium.

Where SDLT is due on the NPV , you must calculate the tax at a flat rate of 1% on the amount of the NPV that’s over the SDLT NPV threshold. If you’ve already used the threshold, for example with a linked lease, then use 1% on the total NPV to calculate the tax.

You are granted a new residential lease. The  NPV  of the rent under the lease is £260,000, the amount of the  NPV  that’s over the £250,000 residential threshold is £10,000. Pay  SDLT  on £10,000 at 1%. Add this to the amount of  SDLT  due on the premium.

Fill in the return

For new leases, fill in the SDLT return even if there’s no SDLT due, unless either the lease is for:

• 7 years or more, the premium is less than £40,000 and the annual rent is less than £1,000
• less than 7 years and you do not pay SDLT on any part of the premium or rent

Fill in the SDLT return online and calculate and pay any tax due.

Calculate SDLT on new non-residential leases

The amount of SDLT due when you buy a new non-residential lease depends on the amounts of the premium (or purchase price of the lease) and rent you pay under the lease.

The premium

If the annual rent for the lease (not the NPV ) is less than £1,000, as a buyer you pay SDLT on the premium. This is at the same rate you would pay on the sale price of a freehold non-residential property. This means you’ll only have to pay SDLT if the premium is more than the threshold.

From 17 March 2016 you do not have to pay SDLT on the premium for annual rents of £1,000 or more if the premium is under the £150,000 non-residential threshold. The ‘£1,000 rule’ has been abolished from this date.

You pay a premium of £280,000 for some office space. The SDLT due would be calculated as follows:

If the NPV of the rent is over the non-residential SDLT threshold (£150,000), you pay SDLT on the rent as well as on the premium.

The NPV of the rent for a non-residential lease is £5,100,000. The SDLT due would be calculated as follows:

Calculate the NPV of the rent

Use the SDLT lease transactions calculator to work out the NPV and the amount of any SDLT due. Select ‘residential’ or ‘non-residential’ as appropriate, for the property type. Make sure you’ve these details to hand:

• effective date of the transaction — usually the date of completion
• start and end dates as shown in the lease
• total premium payable (for non-residential or mixed used properties)
• rent payable in each of the first 5 years, if you know it

If the term of the lease is longer than 5 years, the calculator will work out the amount of SDLT due by taking the highest rent payable in the first 5 years. It will apply that amount to each year of the rest of the term.

If VAT is payable on the rent

Include any VAT payable on the rent in the NPV calculation. Use the rates:

• 1 January 2010 to 3 January 2011 inclusive — 17.5%
• 4 January 2011 onwards — 20%

All or part of rent unknown or uncertain

When you buy a lease, you may not know how much the rent will be each year, for example because the amount depends on how well the business does.

In this case, when you work out the NPV of the rent, estimate what the rent will be to calculate the SDLT due. Then, recalculate the NPV when either:

• you know the actual amount of the rent
• the first 5 years have passed

If your recalculation shows that the NPV is more than the amount you used on your original SDLT return, tell HMRC and pay any extra tax due.

Write to the Birmingham Stamp Office within 30 days of the review date to tell them the revised figure for the NPV . Include the extra payment due. You must write even if you made the original notification online.

If your recalculation shows that you overestimated the NPV and paid too much SDLT , write to claim a refund.

Term of lease is unknown or indefinite

If you do not know the term of the lease or it’s not definite, count it as a lease for a fixed term of one year to calculate the NPV . If it carries on after the end of the first year, count it as a lease for a fixed term of 2 years and so on for as long as it continues. This is a ‘growing lease’.

If the lease is a growing lease, fill in the SDLT return if either:

• SDLT is due when the lease is granted
• SDLT becomes due as the lease continues

If a tenancy carries on from one period to the next it’s called a ‘periodic tenancy’ (unless either party gives notice to end it). This is the most common example of an indefinite lease.

Lease surrendered and new lease granted on the same property

There are special rules to use when a landlord surrenders a lease early and grants a new lease to the same tenant for the same property.

Original lease granted on or after 1 December 2003

If the rent for the new lease is higher than the rent for the old one, calculate the NPV for the period covering:

• the start of the new lease
• the date when the old lease was due to end — use only the amount of rent increase

This is an overlap period and you may be able to claim overlap relief .

Original lease granted before 1 December 2003

If the original lease was a ‘Stamp Duty lease’ and granted before SDLT was introduced on 1 December 2003, use the whole rent for the term of the new lease to calculate the NPV .

Original lease granted on or after 17 March 2016

If the rent for the new lease is higher than the rent for the old one, calculate the NPV for the period covering the:

• start of the new lease
• date when the old lease was due to end — use only the amount of rent increase

The monthly rent increases by £200 at the start of the new lease, and the old lease is due to end 12 months later, the amount of rent taken into account for this period is £2,400. Then, take into account the full rent due for the rest of the term of the new lease.

If you have problems with the calculation, contact the Birmingham Stamp Office .

Guidance is available on the reform of structure, rates and thresholds for non-residential land transactions .

Example calculations have been added to 'SDLT on the Premium' and 'The NPV of the rent' sections, showing the new Stamp Duty Land Tax rates introduced on 23 September 2022.

The Section about SDLT on the premium has been updated as the Stamp Duty Land Tax holiday rates ended on 30 September 2021.

The title of the page has been changed to Stamp Duty Land Tax on Leasehold sales.

Purchase deadlines extended for reduced rates for Stamp duty Land Tax.

The government has temporarily increased the nil rate bands of residential Stamp Duty Land Tax from £125,000 to £500,000.

From 1 April 2018 SDLT will no longer apply in Wales. You'll pay Land Transaction Tax which is dealt with by the Welsh Revenue Authority.

First published.

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• (1) Introduction
• (3) Formal Agreement for Sale and Purchase
• (2) Provisional Agreement for Sale and Purchase
• (4) Redemption
• (5) Assignment
• (6) Mortgage
• (7) Stamp Duty
• (8) Land Registration
• (9) Completion
• (11) Sub-sale and Sub-purchase
• (12) Conveyancing Practice and Procedure

With effect from 1 April 2010, the rate of ad valorem stamp duty is as shown below:

Deferring payment of stamp duty:

With effect from 1 April 1999, an application may be made to the Stamp Office to defer the payment of stamp duty. The following conditions have to be satisfied for deferment of payment :

If the application is approved, the time for payment of stamp duty on the agreement will be as follows:

If the application is not approved, the collector will notify the applicant (or his solicitors) and require the applicant to pay the stamp duty payable.

Time for payment of stamp duty:

If there is no approval for deferment of payment of stamp duty, the time for payment of stamp duty will be as follows:

The time for payment of stamp duty on assignment is within 30 days after the date of execution of the assignment.

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The stamp duty payable during assignation of debt by Asset Reconstruction Companies – By Adv. Haaris Moosa

In Phoenix Arc Private Limited, Mumbai Vs. M/S. Cherupushpam Films Pvt Limited, Ernakulam (2023) ibclaw.in 48 NCLT (hereafter Phoenix ARC) the question raised before the NCLT, Kochi Bench was whether stamp duty has to be paid on a deed assigning debt to an Asset Reconstruction Company (ARC).  The NCLT Kochi Bench has held that the ARC is bound to pay the appropriate stamp duty as per the relevant state legislation, in this case the Kerala Stamp Act, 1959 (KSA, 1959

The stamp duty payable during assignation of debt by Asset Reconstruction Companies

Adv. Haaris Moosa

Stamping has been used by litigators as a deus ex machina for long. Insufficient stamping determines the fate of a case quite independent of its facts or merits. The interplay of the stamping legislations with the Insolvency and Bankruptcy Code, 2016 (IB Code, 2016), has not been adequately analysed by either courts or tribunals.  Stamping in India is regulated by both Union and State legislations since it is covered by Entry 91 of the Union List and Entry 63 of the State List. The Union legislation is the Indian Stamp Act, 1899 (ISA, 1899) 1 and almost all the States have their own stamping statutes. The stamping legislations of old vintage have stood their ground even with the coming of avant garde legislations meant to streamline commercial transactions like the Arbitration and Conciliation Act, 1996, SARFAESI Act, 2002, Companies Act, 2013 and now the IB Code,2016.

In Phoenix ARC Private Limited, Mumbai Vs. M/S. Cherupushpam Films Pvt Limited, Ernakulam (2023) ibclaw.in 48 NCLT  (hereafter Phoenix ARC ) the question raised before the NCLT, Kochi Bench was whether stamp duty has to be paid on a deed assigning debt to an Asset Reconstruction Company (ARC).  The NCLT Kochi Bench has held that the ARC is bound to pay the appropriate stamp duty as per the relevant state legislation, in this case the Kerala Stamp Act, 1959 (KSA, 1959) 2 .  The Hon’ble NCLT held that the applicability of KSA 1959 2 is not ruled out by the prescription under Section 8F of the Indian Stamp Act, 1899 (ISA, 1899) which exempts ARCs from paying any stamp duty on “ any agreement or other document for transfer or assignment of rights or interest in financial assets of banks or financial institution s” covered under section 5 of the SARFAESI Act, 2002.

KSA, 1959 in section 25, declares the assignment of a debt to be a conveyance, and the duty payable has been pegged at 8%. In the instant case, the Tribunal found that the assignment deed was to be stamped at 8% as per Section 25 of KSA, 1959 since the agreement was made in Kerala. Interestingly in the instant case, the stamp duty as per KSA, 1959 comes to Rs. 6,33,99,500/- while the assignment deed was found to be made on a non-judicial stamp paper of Rs. 500/-. Consequently, the Tribunal found the assignment deed to be unenforceable for insufficient stamping. Phoenix ARC breaks new ground in holding that the assignment of a debt to an Asset Reconstruction Company is liable to be stamped as per the concerned state stamping legislation.

In Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta [2019] ibclaw.in 07 SC  (hereafter Essar Steel ) the supreme court confirmed the decision of the NCLAT, [2019] ibclaw.in 109 NCLAT in affirming the decision of the NCLT in rejecting an application that suffered from insufficient stamping. And held that “Further, the submission of the Appellants that they have now paid the requisite stamp duty, after the impugned NCLAT judgment, would not assist the case of the Appellants at this belated stage. These appeals are therefore dismissed.” 3 Quite to the contrary, in Praful Nanji Satra v. Vistra ITCL (India) Ltd. (2022) ibclaw.in 550 NCLAT , the NCLAT went on to reject an argument for dismissal of an application for insufficient stamping, holding that the only issue that the NCLT in IBC proceedings can look at is whether there has been a default, and nothing further. It was also held that insufficient stamping is a curable defect. The effect of insufficient stamping has attracted contradictory judgments from the NCLAT and the Supreme Court. However, Phoenix ARC follows the correct law laid down by the Supreme Court in Essar Steel .

It is to be noted that proceedings under Code are non-adversarial. Any applicant seeking to initiate corporate insolvency proceedings is required to produce documents that satisfy the Adjudicating Authority (the NCLT) proving the default committed by the corporate debtor. Such an applicant is also required to ensure that the financial contracts on which they rely are legally sound and are not truncated. While structuring true sale transactions for assignment of debt (standard assets or NPA), compliance under the applicable stamping legislations must be ensured to avoid legal complications.

Disclaimer:  The Opinions expressed in this article are that of the author(s). The facts and opinions expressed here do not reflect the views of IBC Laws ( http://www.ibclaw.in ). The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author(s) and IBC Laws ( http://www.ibclaw.in ) do not take responsibility of the same. Postings on this blog are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.

Follow for daily updates:

• < https://legislative.gov.in/sites/default/files/A1899-2.pdf > [ ↩ ]
• < https://keralaregistration.gov.in/fileUploads/The%20Kerala%20Stamp%20Act.pdf > [ ↩ ][ ↩ ]
• [2019] ibclaw.in 07 SC , para 99 [ ↩ ]

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