The 2023 amendment to the Karnataka Stamp Duty Bill proposes a substantial increase in stamp duty rates for amalgamations or demergers, with a duty set at the higher of 5% of the property value within Karnataka or 5% of the consideration value. This represents a significant upswing from the current rates of 3% on property value and 1% on consideration value.
This revision positions Karnataka among the states in India with the highest stamp duty burdens for such transactions. Unlike other states, these new provisions encompass both movable and immovable assets. An area of concern is the uncertainty surrounding the application of the new rates to restructurings already approved by the NCLT, pending adjudication and stamp duty payments. It remains unclear whether the old or new rates will apply in such instances.
Acknowledging that only 10% of income is generated from stamps in the registration department, Revenue Minister Krishnabyre Gowda plans to revise this while implementing measures to prevent potential leakage.
The amendment will lead to an increase in stamp duty for legal documents such as power of attorney, deeds, and affidavits. These, along with registration fees, play a crucial role in generating revenue for the state government, with a target to collect Rs.25,000 crore through these means in the current financial year.
For company amalgamations, the proposed amendment suggests an increase in stamp duty from the current 3% of the company’s market value to either 5% or an amount equivalent to 1% of the value of the company’s shares, with a maximum limit of Rs 25 crore for such transactions. Trust registration fees will rise, and fees for company mergers and other procedures will witness an increase.
The INR 25 crore cap on stamp duty for amalgamations or demergers remains unchanged. While the motive behind the increased stamp duty collections is clear, there is a need to ensure that this does not prompt companies to relocate their registered offices outside Karnataka.
Despite aligning Karnataka’s stamp duty rates with those of other states, the bill aims to instill financial accountability and curb stamp duty evasion.
In the fiscal year 2022-2023, Karnataka’s stamp duty collection amounted to about 0.027 crore, with expectations of revenue growth to 1,000 crore. The state garnered crore from registrable documents during the same period. The amendments target approximately 50 instruments, some of which had not been revised for several years, resulting in notably low stamp duty rates.
Existing stamp duty rates in Karnataka for various instruments lag behind those of Maharashtra, Tamil Nadu, Telangana, Andhra Pradesh, Gujarat, and Uttar Pradesh, with some of these rates not being revised since 2003.
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