Stamp Duty on Transfer of Shares of Private Limited Company

Shares represent ownership interests in a company. Share transfer emphasizes the voluntary transfer of ownership interest from one party to another. A business can freely transfer its shares. The stamp duty on transfer of shares of private limited company is 0.015% of the total market value of the shares.

On the other hand, the articles of implementation may set limitations on the capacity to transfer shares to limited liability corporations. The ownership of a private limited business can be determined by looking at the shareholding competency of the company. It is necessary to sell one’s part of the limited liability business in order to sell one’s ownership stake or to attract new investors. The process of transferring shares to limited liability firms is investigated in this blog.

Are There Any Charges for Transfer of Shares?

The transfer deed needs to be stamped in order to comply with both the Indian Stamp Act and the stamp duty notification that was issued in the relevant state. The current rate of stamp duty for the transfer of shares is 25 paise per hundred rupees of the value of the share or any portion thereof. This rate has been in effect since 2010. As a result, the amount of stamp duty that must be paid on shares with a value of Rs 1,050 is Rs 2.75.

How Can I Transfer Shares in Private Limited Company in India?

To initiate the procedure for the transfer of shares, the following steps must be taken:

Step 1: Articles of Association of the Private Limited Company must be reviewed, and any applicable restrictions.

Step 2: The shareholder must notify the company’s director in writing of their intention to transfer shares.

Step 3: Determine, following the Articles of Association, the initial price at which the company’s shares will be offered to existing shareholders. (The board of directors or a company auditor typically determines this price.)

Step 4: The company must then notify the other shareholders of the availability of shares, the final date to purchase them, and the price at which they are available.

If any current shareholders wish to purchase additional shares, they must be allotted to them. If no existing shareholder is interested or if there are excess shares, they can be transferred to an outsider.

To transfer the shares, the following steps must be taken:

Step 1: Obtain a share transfer deed in the format specified.

Step 2: Execute the properly signed share transfer deed by the Transferor and Transferee.

Step 3: The share transfer deed must be stamped following the Indian Stamp Act and Stamp Duty Notification in effect for the state.

Step 4: Sign the share transfer deed with a witness’s signature, name, and address.

Step 5: Deliver the transfer deed and the share certificate or allotment letter to the company.

Step 6: The company must issue a new share certificate in the transferee’s name if the documents are approved.

How Do I Transfer Share without Tax?

As we have studied the procedure for transferring shares in a limited liability company, let’s now examine how to transfer shares tax-free. Shares and securities are considered to be movable property, as is common knowledge.

After the introduction of e-DIS (electronic delivery instruction slip) by CDSL, trading online and on apps provide a different platform for gifting stocks, mutual funds, and bonds. It is now simple and fashionable to share stocks and securities with family and friends online.

Tax Consequences for the Sender

According to Section 2(14) of the Income Tax Act, stocks and bonds are Capital Assets. Transfers of Capital Assets are subject to Capital Gains taxation. However, Section 47’s definition of “transfer” specifically excludes gifts. Therefore, the gift of shares and securities is not taxable in the sender’s hands.

Tax Consequences for the Recipient

1. The gift is exempt if the value of the shares and securities does not exceed INR 50,000.
2. If the FMV of the shares exceeds Rs 50,000, they will be taxed under the head Income from Other Sources at the applicable slab rates for a non-relative.

What Documents Are Required for Transfer of Shares?

Good documentation is essential for the registration of a company and expedites incorporation. Here is a list of the documents required from the company’s directors and registered addresses for the company’s incorporation. Please review the following list of documents:

1. The original share certificate of the share being transferred

2. Stamp duty payment certificate (Franking) upon the issue of share certificate

3. Assessment and the transfer agreement

4. Form for the transfer of shares duly signed by all parties

5. Proof of identity and address for the transferor and transferee

6. evidence of payment of transfer consideration, if any

FAQ: Stamp Duty on Transfer of Shares of Private Limited Company

1. Can private shares be transferred? 

Any private agreements between shareholders bind neither the company nor the shareholders. In addition, the Articles of Association can only impose share transfer restrictions. The right to transfer shares of a private limited company cannot be completely restricted or prohibited.

2. Who pays stamp duty in case of transfer of shares?

According to Section 29 of the Indian Stamp Act of 1899, the person who executes the document is responsible for the costs.

3. Is stamp duty payable on gift of shares?

As the transfer of Shares is subject to the central Stamp duty, the transferee must pay stamp duty at the rate of Rs 0.25 per every Rs 100 of the share’s value, per Article 62 (a) of Schedule I of the Indian Stamp Act, 1899.

4. Is board approval required for transfer of shares?

Section 173 requires the company to hold a board meeting to approve the share transfer and pass the appropriate resolution. The Company’s Articles of Incorporation will also dictate the need for a Board Meeting.

Conclusion

In India, state governments impose a tax on the transfer of shares of private limited company. The rate and calculation of the duty vary by state and can be a percentage of the shares’ market value or purchase price. It is essential to comprehend the applicable laws and regulations in the state where the transfer will occur.

Recommended Articles

Private Limited Company Tax Rate (All You Need to Know)

List of Designations in a Private Limited Company (2023)