18 Stamp Duty Compliance: A Detailed Overview of SEBI's Mandate on AIF Unit Transactions

Key Takeaways:

- AIFs must collect stamp duty on the issue, transfer, and sale of their units as per the Indian Stamp Act, 1899.

- Registered Transfer Agents (RTAs) appointed by AIFs will act as collecting agents for stamp duty.

- For transactions through recognized stock exchanges or depositories, the respective exchange/clearing corporation or depository is empowered to collect stamp duty.

- The directive ensures compliance with stamp duty regulations for AIF unit transactions, promoting transparency and uniformity.

Detailed Narrative:

The Securities and Exchange Board of India (SEBI) has introduced a new regulatory framework for Alternative Investment Funds (AIFs) to ensure compliance with stamp duty regulations on the issue, transfer, and sale of AIF units. This move aims to bring transparency and uniformity in stamp duty collection for AIF unit transactions, aligning with regulations applicable to other securities.

Through a gazette notification (S.O. 116(E) dated January 08, 2020), the Government of India notified Registrars to an Issue and Share Transfer Agents (RTAs) registered under the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993, as "depositories" for the limited purpose of acting as "collecting agents" under the Indian Stamp Act, 1899, and the rules made thereunder. This notification applies to instruments of transactions other than through recognized stock exchanges or depositories.

In light of this notification, SEBI has mandated AIFs to comply with the applicable provisions of the Indian Stamp Act, 1899, and the rules made thereunder regarding the collection of stamp duty on the sale, transfer, and issue of AIF units, effective from July 01, 2020.

The RTAs appointed by AIFs shall collect the stamp duty on the issue, transfer, and sale of AIF units, as stated in the gazette notification and SEBI's directive. This ensures compliance with the applicable provisions of the Indian Stamp Act, 1899, and the rules made thereunder.

However, for transactions involving the issue, transfer, and sale of AIF units in demat mode through recognized stock exchanges or depositories, as defined under the Securities Contract (Regulation) Act, 1956, and the Depositories Act, 1996, respectively, the respective stock exchange/authorized clearing corporation or depository is empowered to collect stamp duty as per the amended Indian Stamp Act, 1899, and the rules made thereunder.

FAQs:

Q1: Why is SEBI mandating stamp duty collection on AIF unit transactions?

A1: SEBI's directive aims to ensure compliance with the Indian Stamp Act, 1899, and bring transparency and uniformity in stamp duty collection for AIF unit transactions, aligning with regulations applicable to other securities.

Q2: Who will act as the collecting agent for stamp duty on AIF unit transactions?

A2: Registered Transfer Agents (RTAs) appointed by AIFs will act as collecting agents for stamp duty on the issue, transfer, and sale of AIF units, except for transactions through recognized stock exchanges or depositories.

Q3: What is the role of stock exchanges and depositories in stamp duty collection for AIF unit transactions?

A3: For transactions involving the issue, transfer, and sale of AIF units in demat mode through recognized stock exchanges or depositories, the respective stock exchange/authorized clearing corporation or depository is empowered to collect stamp duty as per the amended Indian Stamp Act, 1899, and the rules made thereunder.

Q4: When did this directive become effective?

A4: The directive for AIFs to comply with stamp duty regulations on the issue, transfer, and sale of AIF units became effective from July 01, 2020.

Key Precedents:

- Indian Stamp Act, 1899: This act governs the collection of stamp duty on various instruments, including securities transactions. SEBI's directive ensures compliance with the provisions of this act for AIF unit transactions.

- SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993: The gazette notification designated RTAs registered under these regulations as "depositories" for the limited purpose of acting as collecting agents for stamp duty on certain transactions.

- Securities Contract (Regulation) Act, 1956, and Depositories Act, 1996: These acts empower stock exchanges, clearing corporations, and depositories to collect stamp duty on transactions involving the issue, transfer, and sale of AIF units in demat mode through recognized platforms.

The directive from SEBI ensures that AIFs comply with the existing legal framework and regulations governing stamp duty collection on securities transactions, promoting transparency and uniformity in the AIF industry.

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Here's AIF Master Circular's verbatim Chapter 18

Chapter 18 - Collection of stamp duty on issue, transfer and sale of units of AIFs{51}

18.1. Government vide Gazette notification S.0 .1 16(E) dated January 08, 2020 notified the “Registrars to an Issue and/or Share Transfer Agents” (RTA) registered under the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 as a “depository” for the limited purposes of acting as a “collecting agent” under the Indian Stamp Act, 1899 and the Rules made thereunder, only in case of instruments of transaction otherwise than through a recognized stock exchange or depository.

18.2. In this regard, AIFs have been mandated to comply with the applicable provisions of the Indian Stamp Act, 1899 and the Rules made thereunder regarding collection of stamp duty on sale, transfer and issue of units of AIFs with effect from July 01, 2020.

18.3. RTA appointed by AIFs shall collect the stamp duty on issue, transfer and sale of units of AIFs as stated in para 18.1 and 18.2 above, in compliance with the applicable provisions of the Indian Stamp Act, 1899 and the Rules made thereunder.

18.4. As regards transactions (issue, transfer and sale of units of AIFs in demat mode) through recognized Stock Exchange or Depository as defined under Securities Contract (Regulation) Act, 1956 and Depositories Act, 1996 respectively, the respective Stock Exchange/authorized Clearing Corporation or a Depository is empowered to collect stamp duty as per the amended Indian Stamp Act, 1899 and the Rules made thereunder.

Note:-

51SEBI Circular No. SEBI/H0/IMD/DF6/CIR/P/2020/113 dated June 30, 2020