insurance assignment stamp duty

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Insurance Policyholder Taxation Manual

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IPTM7360 - Assignments: when chargeable events arise

Assignments for money or money’s worth.

The assignment of all the rights under a life insurance policy, capital redemption policy or life annuity contract (a ‘whole assignment’) is normally a chargeable event if it is for money or money’s worth. Exceptions are time-served qualifying policies in certain circumstances, as described in IPTM7310 and the specific exceptions described in IPTM7365 .

This only applies to assignments of the beneficial interest in the policy. An assignment of the legal ownership only, leaving the beneficial ownership unchanged, is not a chargeable event. A whole assignment not for money or money’s worth is not a chargeable event.

Meaning of ‘money or money’s worth’

‘Money or money’s worth’ has a wider meaning than simply just cash, for instance if an individual transferred beneficial ownership of a policy to another person in return for a valuable asset then that would be an assignment for money’s worth.

In many cases an insurer will have information about an assignment which will enable it to decide whether the assignment was for money or money’s worth, and so whether chargeable event certificates need to be issued. The Stamp Duty category is not always a sound indicator of whether consideration has been given on the assignment because the wrong deed is sometimes used.

IPTM7370 to IPTM7385 give guidance on whether an assignment is for money or money’s worth in certain cases, such as on divorce. In other cases, the insurer is entitled to assume that an assignment is not for money or money’s worth unless it has information indicating that the assignment was for money or money’s worth, for instance that the purchaser of the policy is a dealer in second-hand policies. It is not required to enquire further into the nature of a particular assignment.

Where the assignment is pursuant to a court order, it is not for money or money’s worth. This is only likely to arise on divorce or separation.

Part assignments for money or money’s worth

An assignment of part of the rights (a ‘part assignment’) for money or money’s worth might be a chargeable event in its own right if a transaction-related calculation shows a gain. Or it may give rise to an ‘excess event’. These questions are considered in detail in IPTM7600 onwards.

Part assignments not for money or money’s worth

A part assignment which occurs in an insurance year beginning on or after 6 April 2001 that is not for money or money’s worth, for instance by way of gift, cannot be a chargeable event or give rise to an excess event.

A part assignment not for money or money’s worth that occurred in an insurance year beginning before 6 April 2001 may have given rise to an excess event under the pre-FA01 legislation. The gain on such an event should be deducted in computing the gain on a later full surrender, maturity, whole assignment or death in the same way as for gains on other excess events - see IPTM7510 for the calculation rule.

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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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Stamp Duty Exemption Orders for Certain Insurance/ Takaful Products Gazetted

Three subsidiary legislation were gazetted in late-December 2020 in relation to exemption from stamp duty for certain insurance products. All three laws will come into operation on 1 January 2022 .

Stamp Duty (Exemption) (No. 5) 2018 (Amendment) Order 2021 [P.U.(A) 462/2021]

The Stamp Duty (Exemption) (No. 5) 2018 [P.U.(A) 359/2018] (‘ Principal Order ’) exempts from stamp duty any insurance policy or takaful certificate for Perlindungan Tenang products issued by an insurer licensed under the Financial Services Act 2013 (‘ licensed insurer ’) or a takaful operator licensed under the Islamic Financial Services Act 2013 (‘ licensed takaful operator ’) with an annual premium or takaful contribution not exceeding RM100 per annum.

The Stamp Duty (Exemption) (No. 5) 2018 (Amendment) Order 2021 amends the Principal Order by increasing the exemption threshold of annual premium or takaful contribution of RM100 per annum to RM150 per annum for Perlindungan Tenang products.

The exemption under the Principal Order applies to insurance policies or takaful certificates for Perlindungan Tenang products issued on or after 1 January 2019 but no later than 31 December 2025. 1

For the purposes of the Principal Order, ‘Perlindungan Tenang’ products refer to insurance or takaful products approved by Bank Negara Malaysia (‘ BNM ’) to be offered by a licensed insurer or a licensed takaful operator under the ‘Perlindungan Tenang’ initiative.

Stamp Duty (Exemption) (No. 15) Order 2021 [P.U.(A) 464/2021]

The Stamp Duty (Exemption) (No. 15) Order 2021 (‘ Exemption Order No. 15 ’) exempts from stamp duty any insurance policy or takaful certificate for product issued by a licensed insurer or a licensed takaful operator to micro enterprise or small and medium enterprises with an annual premium or takaful contribution not exceeding RM250 per annum.

The exemption under Exemption Order No. 15 applies to insurance policies or takaful certificates issued on or after 1 January 2022 but no later than 31 December 2025.

For the purposes of Exemption Order No. 15:

• ‘ product ’ refers to the following insurance or takaful product approved by BNM to be offered by a licensed insurer or licensed takaful operator:
• fire insurance or takaful;
• fire business interruption insurance or takaful;
• personal accident insurance or takaful;
• travel insurance or takaful;
• liability insurance or takaful;
• engineering insurance or takaful;
• ‘ micro enterprise ’ or ‘ small and medium enterprises ’ refers to micro enterprises or small and medium enterprises as may be determined by the National Entrepreneur and Small and Medium Enterprises Development Council established under section 2A of the Small and Medium Industries Development Corporation Act 1995.

Stamp Duty (Exemption) (No. 16) Order 2021 [P.U.(A) 465/2021]

The Stamp Duty (Exemption) (No. 16) Order 2021 (‘ Exemption Order No. 16 ’) exempts from stamp duty any insurance policy or takaful certificate for product issued by a licensed insurer or a licensed takaful operator to an individual with an annual premium or takaful contribution not exceeding RM150 per annum.

The exemption under Exemption Order No. 16 applies to insurance policies or takaful certificates issued on or after 1 January 2022 but no later than 31 December 2025.

For the purposes of Exemption Order No. 16, the expression ‘ product ’ has the meaning assigned to the expression in Exemption Order No. 15.

These exemption orders are in line with Budget 2022 tabled by the Minister of Finance in late October 2021 with the goal to ensure that the Rakyat’s well-being is being taken care of.

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Care To Take While Assigning Your Life Insurance Policy Oct 05, 2019

Life insurance indemnifies risk, provides financial security to your dependents in the case of death, and vital to one's financial wellbeing.

But did you know that life insurance has other benefits as well?

Many are not aware of this but the rights (ownership) of the life insurance policy can be legally transferred to another person or entity. This is better known as assignment of insurance policy. The person who assigns/transfers the policy is known as the `assignor' and the person/entity in whose name the policy is transferred to is known as the `assignee'.

[ Read: How To Insure Life Optimally ]

There can be various reasons to assign a policy. The policy can be assigned as a gift to someone or used as collateral to avail a loan. The assignment should be in accordance with provisions of section 38 of the Insurance Act, 1938. Assignment can be partial or whole, with or without consideration.

An assignment can be made by an endorsement (amendments) on the policy document or through a separate assignment deed (stamp duty needs to be paid in this case). In either case, it must be signed by the assignor or his/her duly authorised agent and attested by at least one witness.

It is necessary to inform the insurer about any assignment. The insurer, i.e. the insurance company, may accept the assignment or decline it if it has sufficient reason to believe that it is:

Not bonafide or

Not in the interest of the policyholder or

Not in public interest or

For the purpose of trading of the insurance Policy.

All types of life insurance policies such as term plan, endowment policy, and ULIP (excluding pension plans/annuities) provide the assignment option.

[ Read: What should be your check points before buying insurance? ]

On completion of assignment, the assignor loses all the rights on the policy. The assignee will be the lone beneficiary of death/maturity benefit of the policy.

An assignor can make more than one assignment. Assignments are prioritised on the basis of the date on which the insurer was notified.

After assignment, the assignee along with being entitled to all benefits under the policy, he/she will be subject to all liabilities and equities under the policy to which the assignor was subject to on the date of assignment.

Once validly executed, the assignment cannot be cancelled or rendered ineffectual by the assignor. In case of death of the assignee, the legal heirs of the assignee will be entitled to the policy benefits.

Assignment can be absolute or conditional. Absolute assignment is a complete transfer of the ownership of the policy to the assignee without any conditions applicable. The assignee may then, if he/she wishes, transfer the rights to another person or surrender the policy. For example, a person holding a life insurance policy wants to gift the policy to his wife can opt for an absolute transfer.

Conditional assignment can be done when you wish to avail of a loan from an individual or an entity. The transfer of rights will be made once the specified condition is met. If a person wants to avail of a loan from the bank, the insurance policy can be used as collateral. If the policy holder fails to clear the outstanding dues, the bank may surrender the policy kept as collateral to recover the amount.

The bank will be entitled to the benefit post death if the policy holder dies during the tenure of the loan. If the policy holder pays back the loan, the policy can be reassigned to him/her by the bank.

[ Read: How Are Life Insurance Claims Handled In Case Of Mysterious Death ]

How is it different from nomination?

Nominee is the person to whom the policy holder authorises to receive the policy benefits on his/her demise. The nominee, however, has no rights over the policy as long as the policy holder is alive. The rights of the policy remain with the policy holder and he/she is free to make changes to the nomination.

Besides the nominee does not always have the complete right over the claim proceeds, the legal heirs of the policy holder can also claim the money.

In assignment the rights and interests are immediately transferred. The assignees can deal with the policy as per their wish.

The tax benefits on premiums paid for the life insurance under section 80C of the Income Tax Act can only be claimed by the policy holder or the life insured even if the assignee pays the premium. This is because the policy is not on the life of the assignee. In case the policy is assigned when availing a loan, the premium will have to be paid by the assignor.

Care to be taken while assigning the policy:

Make sure your policy is eligible for assignment

Follow the procedure as mentioned under the section 38 of the Insurance Act, 1938

Take special care when opting for conditional assignment and pay detailed attention to conditions of the assignment. For e.g., what would happen if the outstanding loan amount is lower than the assured benefit, you do not want the assignee to receive more benefits than is due to them.

In case of more than one assignee, mention that percentage share of each assignee.

If the policy is being assigned to a minor, a guardian must be appointed.

Lastly, make sure that all required documents such as KYC details, stamp duty, original policy document, etc. are well in order.

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• STAMP DUTY EXEMPTION ORDERS

STAMP DUTY EXEMPTION ORDERS CERTAIN INSURANCE POLICIES GAZETTED

With reference to the Stamp Duty (Exemption) (No. 15) and (No. 16) Order 2021 that came into effect on 1 January 2022 where stamp duty exemption is given to individuals and micro-enterprise or small and medium enterprises for the purchase of the following insurance policies: 

If you have paid the RM10 stamp duty for any of the exempted policies above, please provide your bank account details to us within fourteen (14) days from this letter. Failure to do so will result in the transfer of  the said amount to unclaimed money. Please follow the steps below to proceed with the refund :-

• Download and fill up the form here .
• Enclose the top portion of your bank statement/banking passbook displaying your name and bank account details.  Berjaya Sompo will perform the necessary validation using the information provided to process the refund.
• Submit the form and bank details to [email protected]  

For micro enterprise or small and medium enterprises, please fill up the declaration form here and provide the following supporting documents to be eligible for the stamp duty refund.

• Audited Financial Statement or SSM Company Profile as proof of annual sales turnover OR
• KWSP Form A as proof of number of employees. 

Please do not hesitate to email us at [email protected] if you need clarification.

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Stamp duty updates

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Tax alert vol 24 no 1_11 january 2021.

In 2019, the Government announced that RM550 million had been allocated for the Oil Palm Smallholders Replanting (TSPKS) and the Oil Palm Smallholders Agriculture Input (IPPKS) soft loan schemes. The loans are given at an interest rate of 2%.

The Stamp Duty (Exemption) (No. 7) Order 2020 [P.U.(A) 379] was gazetted on 28 December 2020 to provide a stamp duty exemption on the financing agreements under the TSPKS and IPPKS financing programmes pursuant to the Tawarruq concept executed between an individual and Bank Pertanian Malaysia Berhad (Agrobank). The exemption will apply to financing agreements executed between 24 July 2019 and 31 December 2021.

The Order is effective 24 July 2019.

In Budget 2021, it was proposed that the stamp duty exemption provided on the relevant instruments executed by the original house purchaser and the approved rescuing contractor or developer be extended to 31 December 2025 (see EY Take 5: Malaysia Budget 2021 ). To legislate this, the following Amendment Orders were gazetted on 31 December 2020:

• Stamp duty (Exemption) (No. 5) 2013 (Amendment) Order 2020 [P.U.(A) 395]

This Order amends the Stamp Duty (Exemption) (No. 5) Order 2013 [P.U.(A) 91] that provides stamp duty exemption on the relevant instruments executed by the original house purchaser.

• Stamp Duty (Exemption) (No. 6) 2013 (Amendment) Order 2020 [P.U.(A) 396]

This Order amends the Stamp Duty (Exemption) (No. 6) Order 2013 [P.U.(A) 92] that provides stamp duty exemption on the relevant instruments executed by a rescuing contractor or developer approved by the Minister of Housing and Local Government (MHLG).

In Budget 2021, to continue encouraging the B40 households to learn the benefit of insurance and takaful , and over time acquire their own protection policies, the Government proposed to extend the waiver of stamp duty for all Tenang Insurance products for another five years.

To legislate this, the Stamp Duty (Exemption) (No. 5) 2018 (Amendment) Order 2020 [P.U.(A) 397] was gazetted on 31 December 2020. The Amendment Order provides a stamp duty exemption for any insurance policies and takaful certificates for Perlindungan Tenang products issued by a licensed insurer or a licensed takaful operator until 31 December 2025, with an annual premium or takaful contribution not exceeding RM100.

The Amendment Order is effective 1 January 2021.

The Stamp Duty (Exemption) (No. 2) Order 2017 [P.U.(A) 408], gazetted on 26 December 2017, provides a stamp duty exemption on a contract note executed for the sale and purchase transaction of a structured warrant or exchange-traded fund approved by the Securities Commission (SC) under the Capital Markets and Services Act 2007. The Order applies to contract notes executed between 1 January 2018 and 31 December 2020.

In Budget 2021, it was proposed that the exemption for the contract note executed for the sale and purchase transaction of an exchange-traded fund be extended for another five years, until 31 December 2025.

To legislate this, the Stamp Duty (Exemption) (No. 2) 2017 (Amendment) Order 2020 [P.U.(A) 421] was gazetted on 31 December 2020.

The Amendment Order came into operation on 1 January 2021.

As part of the Government’s efforts to provide comfortable and quality housing, especially to the low-income group, the Stamp Duty (Exemption) (No. 8) Order 2020 [P.U.(A) 423] was gazetted on 31 December 2020. The Order provides a stamp duty exemption on the following instruments for the purchase of a flat under the National Economic Action Council’s People Housing Programme (PPR-MTEN) and Dewan Bandaraya Kuala Lumpur (DBKL)’s Public Housing Programme (PA DBKL), which are executed between 1 January 2020 and 31 December 2024:

The following terms have been defined in the Order:

(a)  Financial institution

Same meaning as that assigned to a “banker” in Section 2 of the Stamp Act 1949

(b)  SFS

Loan facilities provided by SPWP which are fully owned by Yayasan Wilayah Persekutuan

The Order is deemed to be in operation from 1 January 2020 until 31 December 2024.

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Some facts related to Stamp Duty on Insurance Policies

As you are aware that an Insurance Policy if a contract between an insurance company and the insured. An Insurance Policy/Contract in which insurer promises to indemnify the insured financially loss or damage due to insured risks/perils.

The Indian Stamp Act, 1899 is fiscal legislation enacted by the British Government with an object to increase the revenue of the government. Stamp duty is an indirect tax levied on various kinds of instruments and transactions like bills of exchange, conveyance deed, mortgage deed, lease deed, promissory notes, transfer of shares, immovable properties, Policies of Insurance etc. by the state governments.

Under the Indian Constitution, the levy of stamp duty comes under the State subject (Entry 63 of State List-II) and it varies from state to state as it is not constant.

A document or instrument properly stamped has an evidentiary value and is admissible in the court of law. Stamp duty is to be paid in any sale or transfer of property. Delay in the payment of stamp duty attracts a penalty which is generally an ad valorem rate and the maximum penalty could range from two times the deficient stamp duty to ten times the deficient stamp duty, but it doesn't make the document void or invalid.

SECTION 2(14) "instrument" includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded;

TYPES OF STAMP DUTY

Impressed stamps.

It is usually done by the process of embossing or engraving. Labels are affixed by the officer concerned and in the banks by the franking machines.

Adhesive Stamps

It is usually stuck to the instruments by any form of adhesive and it is of two types:

(a) Postal Stamps: Stamps used for transacting with the post office,

(b) Non-Postal Stamps: They usually have a wider application as they can be in the form of court fee stamps, notarial stamps, revenue stamps, share transfer stamps, etc.

IMPORTANCE OF STAMP DUTY

As mentioned earlier, the stamp duty varies from state to state and it also depends upon the value of the property. Stamp duty depends upon the appraised market value of the property. Stamp duty and registration charges amount to a substantial source of revenue for the state governments, often the third of the fourth biggest revenue contributors. Stamp duty is payable whether the property is under construction, completed, or on re-sale. It is payable on the value of the property or on the circle rate, whichever is higher.

PLEASE NOTE THAT : Non-Payment of Stamp Duty does not invalidate a contract or agreement, but it cannot be produced in Court of Law as evidence.

STAMP DUTY ON INSURANCE POLICIES

Section 2(19) of the indian stamp act, 1899.

"Policy of insurance" includes—

(a) any instrument by which one person, in consideration of a premium, engages to indemnify another against loss, damage or liability arising from an unknown or contingent event;

(b) a life-policy, and any policy insuring any person against accident or sickness, and any other personal insurance .

SECTION (19A) "POLICY OF GROUP INSURANCE"

It means any instrument covering not less than fifty or such smaller number as the Central Government may approve, either generally or with reference to any particular case, by which an insurer, in consideration of a premium paid by an employer or by an employer and his employees jointly, engages to cover, with or without medical examination and for the sole benefit of persons other than the employer, the lives of all the employees or of any class of them, determined by conditions pertaining to the employment, for amounts of insurance based upon a plan which precludes individual selection;]

SECTION (20) "POLICY OF SEA-INSURANCE" OR "SEA-POLICY"

(a) means any insurance made upon any ship or vessel (whether for marine or inland navigation), or upon the machinery, tackle or furniture of any ship or vessel, or upon any goods, merchandise or property of any description whatever on board of any ship or vessel, or upon the freight of, or any other interest which may be lawfully insured in, or relating to, any ship or vessel, and

(b) includes any insurance of goods, merchandise or property for any transit which includes, not only a sea risk within the meaning of clause (a), but also any other risk incidental to the transit insured from the commencement of the transit to the ultimate destination covered by the insurance;

Where any person, in consideration of any sum of money paid or to be paid for additional freight or otherwise, agrees to take upon himself any risk attending goods, merchandise or property of any description whatever while on board of any ship or vessel, or engages to indemnify the owner of any such goods, merchandise or property form any risk, loss or damage, such agreement or engagement shall be deemed to be a contract for sea-insurance;

ARTICLE 47, DIVISION D OF SCHEDULE I of Indian Stamp Act, 1899

It prescribed rates on which different types of Insurance Policies charged for Stamp Duty.

PLEASE NOTE THAT: an Insurance Contract comes into existence,when proposal of proposer is accepted by the insurance company and terms of proposal are complied with by the proposer /insured. The Letter of Acceptance /Cover Note is specifically exempted from Stamp Duty.

SECTION 66 OF THE STAMP ACT, 1899

It provides that

Penalty for not making out policy or making one not duly stamped.—

Any person who,—

(a) receives, or takes credit for, any premium or consideration for any contract of insurance and does not, within one month after receiving, or taking credit for, such premium or consideration, make out and execute a duly stamped policy of such insurance; or

(b) makes, executes or delivers out any policy which is not duly stamped, or pays or allows in account, or agrees to pay or allow in account, any money upon, or in respect of, any such policy, shall be punishable with fine which may extend to two hundred rupees.

PLEASE NOTE THAT: A Policy /Insurance Contract must be stamped with duty as prescribed in Article 47, Division D of Schedule I of the Act, 1899 .

STAMP DUTY ON ASSIGNMENT OF INSURANCE POLICIES

As we have discussed above the absence of a policy duly stamped, does not affect the validity of the contract of insurance, but an unstamped policy shall not be admitted as an evidence in the Court of Law.

Where assignment is executed on the back of policy, it does not required Stamp Duty. If assignment is executed by a separate agreement/deed , it must be duly stamped. An assignment executed by the government is exempted.

SECTION 25 OF THE INDIAN STAMP ACT, 1899

Valuation in case of annuity, etc..

Where an instrument is executed to secure the payment of an annuity or other sum payable periodically, or where the consideration for a conveyance is an annuity or other sum payable periodically, the amount secured by such instrument or the consideration for such conveyance, as the case may be, shall, for the purposes of this Act be deemed to be—

(a) where the sum is payable for a definite period so that the total amount to be paid can be previously ascertained—such total amount;

(b) where the sum is payable in perpetuity or for an indefinite time not terminable with any life in being at the date of such instrument or conveyance—the total amount which, according to the terms of such instrument or conveyance, will or may be payable during the period to twenty years calculated from the date on which the first payment becomes due; and

(c) where the sum is payable for an indefinite time terminable with any life in being at the date of such instrument or conveyance—the maximum amount which will or may be payable as aforesaid during the period of twelve years calculated from the date on which the first payment becomes due.

PLEASE NOTE THAT PROVISIONS RELATED TO PAYMENT OF STAMP DUTY

Section 3 in the indian stamp act, 1899, instruments chargeable with duty.

Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore, respectively, that is to say—

(a) every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July, 1899;

(b) every bill of exchange payable otherwise than on demandor promissory note drawn or made out of India on or after that day and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and

(c) every instrument (other than a bill exchange or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of India on or after that day relates to any property situate, or to any matter or thing done or to be done, in India and is received in India:

Provided that no duty shall be chargeable in respect of—

(1) any instrument executed by, or on behalf of, or in favour of, the Government in cases where, but for this exemption, the Government would be liable to pay the duty chargeable in respect of such instrument;

(2) any instrument for the sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of any ship or vessel, or any part, interest, share or property of or in any ship or vessel, registered under the Merchant Shipping Act, 1894, or under Act 19 of 1938, or the Indian Registration of Ships Act, 1841 (10 of 1841) as amended by subsequent Acts.

(3) any instrument executed, by, or, on behalf of, or, in favour of, the Developer, or Unit or in connection with the carrying out of purposes of the Special Economic Zone.

Explanation.—For the purposes of this clause, the expressions "Developer", "Special Economic Zone" and "Unit" shall have meanings respectively assigned to them in clause (g), (za) and (zc) of section 2 of the Special Economic Zones Act, 2005.]

PLEASE NOTE THAT Policies of sea-insurance

Where any sea-insurance is made for or upon a voyage and also for time, or to extend to or cover any time beyond thirty days after the ship shall have arrived at her destination and been there moored at anchor, the policy shall be charged with duty as a policy for or upon a voyage, and also with duty as a policy for time.

TIME LIMIT FOR PAYMENT OF STAMP DUTY

Section 17. instruments executed in india.

All instrument chargeable with duty and executed by any person in India shall be stamped before or at the time of execution.

SECTION 18. Instruments other than bills and notes are executed out of India

(1) Every instrument chargeable with duty executed only out of India and not being a bill of exchange or promissory note, may be stamped within three months after it has been first received in India.

(2) Where any such instrument cannot, with reference to the description of stamp prescribed therefor, be duly stamped by a private person, it may be taken within the said period of three months to the Collector, who shall stamp the same, in such manner as the State Government may by rule prescribe, with a stamp of such value as the person so taking such instrument may require and pay for.

SECTION 19. Bills and notes drawn out of India

The first holder in India of any bill of exchange payable otherwise than on demandor promissory note drawn or made out of India shall, before he presents the same for acceptance or payment, or endorses, transfers or otherwise negotiates the same in India, affix thereto the proper stamp and cancel the same: Provided that,—

(a) if, at the time any such bill of exchange or note comes into the hands of any holder thereof in India, the proper adhesive stamp is affixed thereto and cancelled in manner prescribed by Section 12 and such holder has no reason to believe that such stamp was affixed or cancelled otherwise than by the person and at the time required by this Act, such stamp shall, so far as relates to such holder, by deemed to have been duly affixed and cancelled;

(b) nothing contained in this proviso shall relieve any person from any penalty incurred by him for omitting to affix or cancel a stamp.

AMOUNT OF STAMP DUTY

As you are aware that Insurance being a Central Government subject ( Article 47 of the Union List in the Seventh Schedule to the Constitution of India) Stamp Duty payable in Life Insurance Polices is fixed by Central Government as follows;

NOTE: OTHER INSURANCE PRODUCTS PLEASE REFER ARTICLE 47,DIVISION D OF SCHEDULE I TO THE INDIAN STAMP ACT, 1899.

PLEASE NOTE THAT : in case of Group Insurance Policies on renewal if Sum Insured exceeds the Sum Insured previously insured on which Stamp Duty has been paid , the proper stamp must be borne on the excess sum so insured.

WHO PAYS STAMP DUTY: ( SECTION 29 of The Indian Stamp Act, 1899 )

In the absence of an agreement to the contrary , the expenses of providing proper stamp duty shall;

(a) in the case of any instrument described in any of the following Articles of Schedule I, namelyby the person drawing, making or executing such instrument:

(Administration Bonds), (Agreement relating to deposit of Title deeds, Pawn or Pledge)], (Bill of Exchange), (Bonds), (Bottomry Bond), (Customs Bond), (Debenture), (Further Charge), (Indemnity-Bond), (Mortgage-deed), (Promissory-note), (Release), (Respondentia Bond), (Security Bond or Mortgage-deed), (Settlement), (Transfer of shares in an incorporated company or other body corporate), (Transfer of debentures, being marketable securities, whether the debenture is liable to duty or not, except debentures provided for by section 8), (Transfer of any interest secured by a bond, mortgage-deed or policy of insurance);

(b) In the case of a policy of insurance other than fire insurance-by person affecting the insurance. (bb) In the case of fire insurance -by person issuing the policy.

(c) In case of conveyance-by grantee.

(d) in case of lease or agreement to lease-by the lessee or intended lessee.

(e) in the case of an instrument of exchange—by the parties in equal shares;

(f) in the case of a certificate of sale—by the purchaser of the property to which such certificate relates; and

(g) in the case of an instrument of partition—by the parties thereto in proportion to their respective shares in the whole property partitioned, or, when the partition is made in execution of an order passed by a Revenue authority or Civil Court or arbitrator, in such proportion as such authority, Court or arbitrator directs.

CONSEQUENCES ON NON-PAYMENT OF STAMP DUTY

Section 33 of indian stamp act, 1899.

Examination and impounding of instruments.—

(1) Every person having by law or consent of parties, authority to receive evidence, and every person in charge of a public office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.

(2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed:

Provided that—

(a) nothing herein contained shall be deemed to require any Magistrate or Judge of a Criminal Court to examine or impound, if he does not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898);

(b) in the case of a Judge of a High Court, the duty of examining and impounding any instrument under this section may be delegated to such officer as the Court appoints in this behalf.

(3) For the purposes of this section, in cases of doubt,—

(a) the State Government may determine what offices shall be deemed to be public offices; and

(b) the State Government may determine who shall be deemed to be persons in charge of public offices.

SECTION 34 ( SPECIAL PROVISION AS TO UNSTAMPED RECEIPTS)

Where any receipt chargeable with a duty not exceeding ten naye paise is tendered to or produced before any officer unstamped in the course of the audit of any public account, such officer may in his discretion instead of impounding the instrument, require a duly stamped receipt to be substituted therefore.

SECTION 35 (INSTRUMENTS NOT DULY STAMPED INADMISSIBLE IN EVIDENCE, ETC)

No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped: Provided that—

(a) any such instrument shall, be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;

(b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it;

(c) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;

(d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898);

(e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of the Governmentor where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act.

SECTION 36 (ADMISSION OF INSTRUMENT WHERE NOT TO BE QUESTIONED)

Where an instrument has been admitted in evidence, such admission shall not, except as provided in section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not duly stamped.

SECTION 37 (ADMISSION OF IMPROPERLY STAMPED INSTRUMENTS)

The State Governmentmay make rules providing that, where an instrument bears a stamp of sufficient amount but of improper description, it may, on payment of the duty with which the same is chargeable be certified to be duly stamped, and any instrument so certified shall then be deemed to have been duly stamped as from the date of its execution.

SECTION 38 (INSTRUMENTS IMPOUNDED, HOW DEALT WITH)

(1) Where the person impounding an instrument under section 33 has by law or consent of parties authority to receive evidence and admits such instrument in evidence upon payment of a penalty as provided by section 35 or of duty as provided by section 37, he shall send to the Collector an authenticated copy of such instrument, together with a certificate in writing, stating the amount of duty and penalty levied in respect thereof, and shall send such amount to the Collector, or to such person as he may appoint in this behalf.

(2) In every other case, the person so impounding an instrument shall send it in original to the Collector.

PENALTIES UNDER INDIAN STAMP ACT, 1899

Section 43 (prosecution for offence against stamp-law.).

The taking of proceedings or the payment of a penalty under this Chapter in respect of any instrument shall not bar the prosecution of any person who appears to have committed an offence against the Stamp-law in respect of such instrument:

Provided that no such prosecution shall be instituted in the case of any instrument in respect of which such a penalty has been paid, unless it appears to the Collector that the offence was committed with an intention of evading payment of the proper duty.

SECTION 48 (RECOVERY OF DUTIES AND PENALTIES)

All duties, penalties and other sums required to be paid under this Chapter may be recovered by the Collector by distress and sale of the movable property of the person from whom the same are due, or by any other process for the time being in force for the recovery of arrears of land-revenue.

SECTION 62 (PENALTY FOR EXECUTING, ETC., INSTRUMENT NOT DUTY STAMPED)

(1) Any person

(a) drawing, making, issuing, endorsing or transferring, or signing otherwise than as a witness, or presenting for acceptance or payment, or accepting, paying or receiving payment of or in any manner negotiating, any bill of exchange payable otherwise than on demand or promissory note without the same being duly stamped; or

(b) executing or signing otherwise than as a witness any other instrument chargeable with duty without the same being duly stamped; or

(c) voting or attempting to vote under any proxy not duly stamped, shall for every such offence be punishable with fine which may extend to five hundred rupees:

Provided that, when any penalty has been paid in respect of any instrument under section 35, section 40 or section 61, the amount of such penalty shall be allowed in reduction of the fine (if any) subsequently imposed under this section in respect of the same instrument upon the person who paid such penalty.

(2) If a share warrant is issued without being duly stamped, the company issuing the same, and also every person who, at the time when it is issued, is the managing director or secretary or other principal officer of the company, shall be punishable with fine which may extend to five hundred rupees.

SECTION 63 (PENALTY FOR FAILURE TO CANCEL ADHESIVE STAMP)

Any person required by section 12 to cancel an adhesive stamp, and failing to cancel such stamp in manner prescribed by that section, shall be punishable with fine which may extend to one hundred rupees .

SECTION 64 (PENALTY FOR OMISSION TO COMPLY WITH PROVISIONS OF SECTION 27)

Any person who, with intent to defraud the Government,—

(a) executes any instrument in which all the facts and circumstances required by section 27 to be set forth in such instrument are not fully and truly set forth; or

(b) being employed or concerned in or about the preparation of any instruments, neglects or omits fully and truly to set forth therein all such facts and circumstances; or

(c) does any other act calculated to deprive the Government of any duty or penalty under this Act, shall be punishable with fine which may extend to five thousand rupees.

SECTION 65 (PENALTY FOR REFUSAL TO GIVE RECEIPT, AND FOR DEVICES TO EVADE DUTY ON RECEIPTS)

(a) being required under section 30 to give a receipt, refuses or neglects to give the same; or

(b) with intent to defraud the Government of any duty, upon a payment of money or delivery of property exceeding twenty rupees in amount or value, gives a receipt for an amount or value not exceeding twenty rupees, or separates or divides the money or property paid or delivered, shall be punishable with fine which may extend to one hundred rupees.

SECTION 66 ( PENALTY FOR NOT MAKING OUT POLICY OR MAKING ONE NOT DULY STAMPED)

Any person who;

SECTION 67 (PENALTY FOR NOT DRAWING FULL NUMBER OF BILLS OR MARINE POLICIES PURPORTING TO BE IN SETS)

Any person drawing or executing a bill or exchange payable otherwise than on demand or a policy of marine insurance purporting to be drawn or executed in a set of two or more, and not at the same time drawing or executing on paper duly stamped the whole number of bills or policies of which such bill or policy purports the set to consist, shall be punishable with fine which may extend to one thousand rupees.

SECTION 68 (PENALTY FOR POST-DATING BILLS, AND FOR OTHER DEVICES TO DEFRAUD THE REVENUE)

(a) with intent to defraud the Government of duty, draws, makes or issues any bill of exchange or promissory note bearing a date subsequent to that on which such bill or note is actually drawn or made; or

(b) knowing that such bill or note has been so post-dated, endorses, transfers, presents for acceptance or payment, or accepts, pays or receives payment of, such bill or note, or in any manner negotiates the same; or

(c) with the like intent, practices or is concerned in any act, contrivance or device not specially provided for by this Act or any other law for the time being in force, shall be punishable with fine which may extend to one thousand rupees.

From above discussion ,it is clear that an unstamped contract /agreement is not taken as evidence in the court of law. An authority as may be specified impound the unstamped contract/agreement/document submitted before him and send to the Collector for determination of proper Stamp Duty and the Penalty. An unstamped Contract/Agreement/Documents is not invalid but taken as evidence only after payment of proper Stamp Duty.

Published by

FCS Deepak Pratap Singh (Associate Vice President - Secretarial & Compliance (SBI General Insurance Co. Ltd.)) Category Corporate Law   Report

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Related legal acts:

• Finance Act 1986 (1986 c 41)
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Key definition:

Stamp duty definition, what does stamp duty mean.

A transfer tax payable on documents and instruments, rather than in respect of a transaction. It is most commonly encountered on the transfer of UK certificated shares, where the stock transfer form is the instrument that is stamped.

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Assignment of insurance policies and claims

Practical law uk practice note w-031-6021  (approx. 19 pages), get full access to this document with a free trial.

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• December 2021

Stamp Duty Exemption Orders for Certain Insurance/ Takaful Products Gazetted

29 December 2021

• ‘ product ’ refers to the following insurance or takaful product approved by BNM to be offered by a licensed insurer or licensed takaful operator:
• fire insurance or takaful;
• fire business interruption insurance or takaful;
• personal accident insurance or takaful;
• travel insurance or takaful;
• liability insurance or takaful;
• engineering insurance or takaful;
• ‘ micro enterprise ’ or ‘ small and medium enterprises ’ refers to micro enterprises or small and medium enterprises as may be determined by the National Entrepreneur and Small and Medium Enterprises Development Council established under section 2A of the Small and Medium Industries Development Corporation Act 1995. 

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All you need to know about assigning life insurance policy.

The insured needs to either endorse the policy document or make a deed of assignment and register the same with the insurer.

• Conditional assignment: This is done when the insured wishes to pass benefits of the policy to a relative in case of early death or certain conditions. The rights of the policyholder are restored once the conditions are fulfilled.
• Absolute assignment: This is done as a part of consideration for a loan in favour of the lender/bank/lending institution. In such an assignment, the insured loses his rights in the policy and the absolute assignee can deal with it independently.
• Proof of income.
• Self attested copy of photo ID and address proof .
• Self attested copy of PAN card.

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What Is a Stamp Duty?

Understanding a stamp duty.

• History of Stamp Duties in the U.S.

The Bottom Line

• Government & Policy

Stamp Duty: Meaning and History in the U.S.

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 Venice in 1604 before being reinvented by Spain in the 1610s, and eventually spreading to Great Britain and her colonies in the late 1600s. 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 £250,000. However, first-time homebuyers get a break—their threshold is £425,000 when buying a property worth £625,000.

What Is a Transfer Tax?

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 .

Are Stamp Taxes Tax Deductible?

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.”

Are Tax Stamps Collectible?

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

A stamp duty, also known as a stamp tax, is a tax imposed on certain transactions and documents, in the United States 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.

TechRound. " Who Introduced Stamp Duty Land Tax (SDLT)? "

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 .”

National Constitution Center. " On This Day: “No Taxation Without Representation!” ."

Gov.UK. “ Stamp Duty Land Tax .”

Internal Revenue Service. “ Publication 530 (2023), Tax Information for Homeowners ."

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Stamp duty waiver for individual and msmes insurance policies.

Dear Valued Customers,

Under Budget 2022, the Government has announced enhanced social protection measures to assist the low-income group (B40) and Micro, Small and Medium Enterprises (MSMEs) segments. These include several incentives to promote financial resilience through higher take up of insurance policies. You may click here to check out the Budget 2022 Speech.

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i.  stamp duty exemption be given to individuals on the purchase of other insurance policies with an annual premium or contribution value not exceeding RM150; and

ii. stamp duty exemption be given to MSMEs on the purchase of insurance policies with an annual premium or contribution value not exceeding RM250.

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Stamp Duty on Debt Assignment

Home | Knowledge Center | Thought Papers Stamp Duty on Debt Assignment

13th Feb, 2018

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Introduction

Assignment of debt is one of the most common forms of transactions in financial markets. It essentially entails transfer of a debt from a creditor (assignor) to a third-party (assignee). One of the biggest challenges faced in debt assignment transactions in India is the significant stamp duty implication on the deed of assignment. Considering the volume of assignment transactions undertaken generally by banks and financial institutions or by asset reconstruction companies (“ ARCs ”), the stamp duty levied becomes a significant cost in such transactions. The Constitution of India (“ Constitution ”) confers upon the Parliament and each State Legislature the power to levy taxes and other duties. The subjects on which the Parliament or a State Legislature or both can legislate are specified in the Seventh Schedule of the Constitution. The Seventh Schedule is divided into 3 (three) lists:

• Union List;
• State List; and
• Concurrent List.

The Parliament has the exclusive power to legislate on the subjects enumerated in the Union List. The State List enumerates the subjects on which each State Legislature can legislate and such laws operate within the territory of each State. The Parliament, as well as the State Legislatures, have the power to legislate over the subjects listed in the Concurrent List.

The entry pertaining to levy of stamp duty in the Union List is as follows: -

“91. Rates of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts.”

The entry pertaining to levy of stamp duty in the State List is as follows: -

“63. Rates of stamp duty in respect of documents other than those specified in the provisions of List I with regard to rates of stamp duty.”

The entry pertaining to levy of stamp duty in the Concurrent List is as follows: -

“44. Stamp duties other than duties or fees collected by means of judicial stamps, but not including rates of stamp duty.” [emphasis supplied]

From the aforementioned entries, it is clear that the power to legislate on the rate of stamp duty chargeable on instruments of debt assignment (since it is not covered under Entry 91 of the Union List) is with the State Legislature. However, the power to determine whether stamp duty can be charged or not on a specific instrument is in the Concurrent List. In this regard, it may be noted that pursuant to the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Act, 2016 (“ Amendment Act ”), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“ SARFAESI ”) and the Indian Stamp Act were amended to provide for an exemption from stamp duty on a deed of assignment in favour of an ARC.

As mentioned above, the power to legislate on whether stamp duty is payable or not on an instrument is in the Concurrent List. Therefore, the Parliament has the power to legislate on the aforesaid subject.

Pursuant to the Amendment Act, section 5(1A) was inserted in SARFAESI which provides that any agreement or document for transfer or assignment of rights or interest in financial assets under section 5(1) of SARFAESI in favour of an ARC is not liable to payment of stamp duty.

In several States, notifications have been issued for remission and/ or reduction of stamp duties on debt assignment transactions. For instance, in Rajasthan, the stamp duty chargeable on any agreement or other document executed for transfer or assignment of rights or interests in financial assets of banks or financial institutions under section 5 of SARFAESI in favour of ARCs 1 has been remitted. Further, in Maharashtra, the stamp duty on instrument of securitization of loans or assignment of debt with underlying security has been reduced to 0.1% (zero point one percent) of the loan securitized or the debt assigned subject to a maximum of Rs. 1,00,000 (Rupees one lac) 2 .

Certain State Governments, such as those of Rajasthan and Tamil Nadu have reduced the stamp duty based on the nature of the financial asset being assigned. In Rajasthan, the stamp duty has been reduced for assignment of standard assets whilst in Tamil Nadu, the stamp duty has been reduced for assignment of non-performing assets and assignment in favour of ARCs.

This paper discusses a recent decision by the Allahabad High Court in the case of Kotak Mahindra Bank Limited v. State of UP & Ors. 3 (“ Kotak case ”), where it was held that an instrument of assignment is chargeable with stamp duty under Article 62(c) (Transfer) of Schedule 1B of the Indian Stamp Act, as applicable in Uttar Pradesh (“ UP Stamp Act ”), as opposed to Article 23 (Conveyance) of Schedule 1B of the UP Stamp Act.

The stamp duty payable in various States under Article 23 or the relevant provision for conveyance is on an ad valorem basis whereas the stamp payable under Article 62(c) or relevant provision for transfer of interest secured, inter alia, by bond or mortgage deed, is a nominal amount. For instance, in Uttar Pradesh, the stamp duty payable under Article 62(c) is Rs. 100 (Rupees one hundred).

Decision in the Kotak case

In the Kotak case, Kotak Mahindra Bank Limited (“ Kotak ”) had purchased and acquired certain loans from State Bank of India (“ Assignor ”) along with the underlying securities.

The question for consideration before the full bench of the Allahabad High Court was whether the deed executed by the applicant with the underlying securities would be chargeable with duty under Article 62(c) or Article 23 of Schedule 1B of the UP Stamp Act.

The court observed that in order to determine whether an instrument is sufficiently stamped, one must look at the instrument in its entirety to find out the true character and the dominant purpose of the instrument. In this case it was observed that the dominant purpose of the deed of assignment entered into between Kotak and the Assignor (“ Instrument ”), was to transfer/ assign the debts along with the underlying securities, thereby, entitling Kotak to demand, receive and recover the debts in its own name and right.

Article 11 of Schedule 1B of the UP Stamp Act provides that an instrument of assignment can be charged to stamp duty either as a conveyance, a transfer or a transfer of lease. The court observed that since the Instrument was not a transfer of lease, it would either be a conveyance or a transfer.

The court referred to the definition of conveyance in the UP Stamp Act, which reads as follows:

““ Conveyance ”. — “Conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for [by Schedule I, Schedule IA or Schedule IB] [as the case may be];” [emphasis supplied]

The court held that the term conveyance denotes an instrument in writing by which some title or interest is transferred from one person to other and that the use of the words “on sale” and “is transferred” denote that the document itself should create or vest a complete title in the subject matter of the transfer, in the vendee. In this case since under the Instrument, the rights of the Assignor to recover the debts secured by the underlying securities had been transferred to Kotak, it was held that the requirement of conveyance or sale cannot be said to be satisfied.

The court further observed that debt is purely an intangible property which has to be claimed or enforced by action and not by taking physical possession thereof, in contrast to immovable and movable property. Where a transaction does not affect the transfer of any immovable or movable property, Article 23 of Schedule 1B cannot have any applicability.

The court’s view was that since debt along with underlying securities is an interest secured by bonds and/ or mortgages, transfer of such debt would be chargeable under Article 62(c).

The court further clarified that under the Instrument, merely the right under the contract to recover the debts had been transferred. Since the borrower(s) had never transferred the title in the immovable property given in security to the Assignor, the Assignor could merely transfer its rights i.e. mortgagee's rights in the property to recover the debts. It was further observed that the Assignor never had any title to the underlying securities and that it merely had the right to enforce the security interest upon default of the borrower(s) in repayment. The right transferred to Kotak was primarily the right to recover the debts, in accordance with law, by proceeding against the underlying security furnished by the bonds/ mortgage deed(s).

Therefore, the court held that the Instrument was chargeable with stamp duty under Article 62(c) of Schedule 1B of the UP Stamp Act.

Whilst coming to the conclusion that assignment of debt would not constitute a conveyance, the court referred to the definition of conveyance to state that debt is an intangible property which has to be claimed or enforced by action and not by taking physical possession thereof, in contrast to immovable and movable property.

In this regard, it may be noted that there are various judicial precedents 4 , where it has been held that an interest (including mortgage interest) in immovable property is itself immovable property.

However, even assuming assignment of debt with underlying securities over immovable property amounts to a conveyance, it

may be pertinent to refer to the definition of conveyance in the UP Stamp Act which specifically excludes a conveyance which is otherwise provided for by the Schedule to the UP Stamp Act.

Article 62(c) of the UP Stamp Act reads as follows:

“62. Transfer (whether with or without consideration) – … (c) of any interest secured by a bond, mortgagedeed or policy of insurance--”

In view of the above, transfer of any interest secured by a mortgage deed, which is covered under Article 62(c), would be excluded from the meaning of conveyance and would be chargeable to stamp duty under Article 62.

In this regard it may be pertinent to refer to the definitions of ‘bond’ and ‘mortgage deed’ under the UP Stamp Act, which is as follows:

“" Bond " includes

(a) any instrument whereby a person obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;

(b) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and

(c) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another

“" Mortgage-deed ". — "mortgage-deed" includes every instrument whereby, for the purpose of securing money advanced, or to be advanced, by way of loan, or an existing or future debt, or the performance of an engagement, one person transfers, or creates, to, or in favour of another, a right over or in respect of specified property;”

In view of the above, where a debt secured by a bond or a mortgage deed is assigned under a deed of assignment, the stamp duty payable on such deed of assignment will be under Article 62(c) of the UP Stamp Act or corresponding provisions of the Stamp Act of other States.

However, in cases of unsecured loans or loans secured by an equitable mortgage (where there is no mortgage deed), the deed of assignment would attract ad valorem stamp duty chargeable on conveyance, since the same will not get covered under Article 62(c) or similar provisions in other states.

The market practice until now has been to stamp the deed of assignment of debt under the relevant article for Conveyance in the applicable Stamp Act. In fact, in States such as Maharashtra, the State Government has issued notifications for reduction of stamp duty on a deed of assignment under the article for Conveyance.

The judgment passed by the Allahabad High Court in the Kotak case may prove to be a welcome step in reducing the incidence of stamp duty on debt assignment transactions. However, it would need to be seen whether in other States a similar view is taken by stamp duty authorities.

This update has been prepared by Aastha (Partner), Debopam Dutta (Managing Associate) and Abhay Jain (Associate).

1 Notification No. F4(3)FD/Tax/2017-110 dated March 8, 2017 issued by Finance Department (Tax Division) Government Of Rajasthan.

2 Notification No.Mudrank-2002/875/C.R.173-M-1 dated May 6, 2002 issued by Revenue & Forests Department, Government of Maharashtra.

3 Reference Against MISC. Acts. No. 1 of 2016, order dated February 9, 2018.

4 Bank of Upper India Ltd. (in liquidation) v. Fanny Skinner and Ors., AIR 1929 All 161. See also Prahlad Dalsukhrai and Ors. v. Maganlal Muljibhai Tewar, AIR 1952 Bom 454 and Harihar Pandey v. Vindhayachal Rai and Ors., AIR 1949 Pat 170.

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