In a move that’ll enable companies to raise debt at a lower cost and
help deepen the country’s bond market, the government has slashed stamp
duty on key financial instruments — debentures and promissory notes.
As per the notification, the new rate for issuance of debenture is 0.25% per annum. The rate would depend on tenure; however, there would be a cap of 0.25% per year or Rs 25 lakh, whichever is lower. This tenurebased rate will lower the cost of raising debt for companies to a large extent.
Duties on promissory notes have been cut by one-fifth. The prevailing rates are 10 paisa for amounts less than Rs 250, 15 paisa for amounts more than Rs 250 but less than Rs 1,000 and 25 paisa for amounts more than Rs 1,000. While debentures attract stamp duty at an average rate of 0.375% ad valorem (as a percentage of the value of issue), promissory notes attract a duty of 0.05%. The new tenorbased system replaces the slab system that was in prevalence until now. Incidentally, states have started e-payment system for stamp duties, which will make it easier for them to administer the new rates.
The Stamp Duty Act empowers the Centre to raise or reduce duty on debentures and promissory notes. However, the onus of reducing the stamp duty on security receipts (SRs) rests with the states, which are yet to take a final view on the issue. The empowered committee of state finance ministers has been asked to look into the matter with a view to create a pan-India market for financial instruments.
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