Transfer of Unquoted Equity Shares(5 of 5) – Stamp Duty Implications
When transferring unquoted equity shares in private companies, stakeholders often prioritize valuation and taxation. However, stamp duty—a mandatory legal requirement—is frequently overlooked. Failure to comply with stamp duty regulations can render share transfers invalid, trigger penalties, and complicate ROC filings, audits, or due diligence during funding or M&A transactions.
This guide outlines the applicability, valuation basis, state-wise rates, and compliance process for stamp duty on physical (SH-4 based) share transfers under Indian laws.
Legal Framework for Stamp Duty on Unquoted Shares
Stamp duty on share transfers is governed by:
Indian Stamp Act, 1899
State-specific stamp duty notifications
Section 56 of the Companies Act, 2013 (requiring Form SH-4 for physical transfers)
Key Compliance Points:
Duty applies on the instrument of transfer (Form SH-4), not the share certificate.
A transfer is not valid unless the instrument is duly stamped and executed.
Applicable to both resident and non-resident transactions (subject to FEMA compliance for the latter).
Valuation Basis for Stamp Duty
Stamp duty is calculated as a percentage of the transaction value or fair market value (FMV)—whichever is higher.
Acceptable Valuation Bases:
Transaction Value: In unrelated party sales where consideration is transparent.
Fair Market Value (FMV): Used for related party transactions or gifts.
Rule 11UA (Income Tax Rules): Often used to determine FMV, especially for tax and FEMA compliance.
Authorities may demand valuation reports for high-value or intra-group transfers.
State-Wise Stamp Duty Rates (Illustrative)
| State | Rate | Remarks |
|---|---|---|
| Maharashtra | ₹0.25 per ₹100 | Mandatory on SH-4; non-judicial stamp paper |
| Gujarat | ₹0.25 per ₹100 | Must be stamped before or at time of execution |
| Delhi | ₹0.25 per ₹100 | E-stamp or adhesive stamp required |
| Tamil Nadu | ₹0.25 per ₹100 | Physical stamps or franking mandatory |
Rates are uniform but payment methods and enforcement vary by jurisdiction.
Step-by-Step Compliance Process
1. Prepare Form SH-4
Prescribed instrument for physical share transfer under Companies Act, 2013.
2. Affix Stamp Duty
Via non-judicial stamp paper, franking, or e-stamp (state-specific).
Stamp must be cancelled before or during signing.
3. Execute the Instrument
Signed by both transferor and transferee.
Must be witnessed (with name, address).
4. Submit to Company
Within 60 days of execution.
Include original share certificate or allotment letter.
Documents Required:
Duly stamped and executed Form SH-4
Original share certificate
PAN cards of both parties (if high-value)
Valuation report (where required)
Illustrative Stamp Duty Calculation Table
| Transaction Value | Stamp Duty @ 0.25% | State | Payment Method |
|---|---|---|---|
| ₹1,00,000 | ₹250 | Gujarat | E-stamp / Franking |
| ₹10,00,000 | ₹2,500 | Maharashtra | Non-judicial stamp paper |
| ₹25,00,000 | ₹6,250 | Delhi | Adhesive or e-stamp |
Duty applies to the entire consideration, not per share.
Frequently Asked Questions (FAQs)
1. Is stamp duty applicable for digital (demat) share transfers?
No. For dematerialized shares, duty is auto-collected by depositories. It applies only to physical transfers via SH-4.
2. Who bears the stamp duty cost?
By default, the transferee (buyer) pays, unless otherwise agreed in writing.
3. Can a transfer be executed without stamp duty?
No. An unstamped or under-stamped SH-4 is invalid and will be rejected by the company.
4. Is stamp duty applicable on gift transfers?
Yes. Duty is payable on the FMV of shares, even if transferred without consideration.
5. Is a valuation report mandatory?
Not always. However, it’s recommended if:
Parties are related
The consideration is significantly below FMV
The transfer is cross-border or subject to tax scrutiny
How Nexpective Advisors Can Assist
Our team provides comprehensive support to ensure your share transfers are legally valid, compliant, and audit-ready:
FMV and Rule 11UA Valuation Reports
Drafting and Execution of SH-4 Transfer Instruments
Assistance with e-stamping / franking (state-specific)
Legal support for Shareholder Agreements & Approvals
Advisory on FEMA, Income Tax, and ROC compliance
We help startups, private companies, and legal teams manage complex, high-value share transfers with zero errors and full compliance.
Conclusion
Stamp duty compliance is not just a procedural formality—it is a legal necessity. Overlooking it can invalidate share transfers, delay investments, or create regulatory liabilities. Ensuring proper valuation, timely payment, and accurate documentation is essential for maintaining transaction integrity and investor confidence.
Seek professional support to navigate jurisdictional variations, avoid pitfalls, and ensure your share transfers are legally enforceable and future-ready.
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