VC/PE funds are typically registered as Alternative Investment Fund (“AIF”) in India. From July 1, 2020, funds have to pay stamp duty on the units issued to their investors/LPs. Funds are also required to appoint an agency for collection of the stamp duty before July 15, 2020.

SEBI through its circular dated June 30, 2020 (“Circular”) has issued directions on collection of stamp duty on issue, transfer and sale of units of AIFs. The Circular has been issued in light of the amendments made to the Indian Stamp Act, 1899 (“Amendment”) by the Finance Act, 2019 which came into effect on July 01, 2020. The Circular has clarified the ambiguity that existed with respect to the application of the Amendment to the issue, transfer and sale of units of AIFs.

Who has to pay the stamp duty?

The stamp duty has to be paid by the fund at the time of issuance of units or the LPs when they transfer their units.

What is the stamp duty on AIF units?

The stamp duty on issue of units is payable by the Fund on the total market value of the units so issued at the applicable rate. 

For sale, transfer or reissue of units the stamp-duty shall be payable by the seller or transferor or issuer, as the case may be, on the consideration amount  at the applicable rate.

The applicable rate of stamp duty under Schedule I of the Indian Stamp Act is below:

Who will collect the stamp duty?

The Circular requires the stamp duty to be collected by the Registrars to an Issue and/or Share Transfer Agents (“RTA”) already appointed by the AIFs. If such appointment has not been made by an AIF yet, they are required to appoint an RTA before July 15, 2020, and till the time such appointment is made, the stamp duty shall be required to be transferred to a designated bank account.

Is stamp duty payable on statement of accounts?

In this regard, SEBI has also issued a set of FAQs which provide for the manner of transfer of stamp duty collected by the RTA to the appropriate state government on transactions in AIF units in the statement of account/physical (non- demat) form.

Conclusion

Funds should amend their Private Placement Memorandums (“PPM”) to account for the stamp duty payable on the issuance of units. The stamp duty will be payable in addition to the contribution amount. Additionally, funds should appoint RTAs before July 15, 2020, if they have not done so already.

This post has been contributed by Ms. Vaneesa Agrawal and Ms. Sanyukta Srivastav.

[Disclaimer: This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. For specific queries, please write to us at admin@thinkinglegal.in.]