Incorporation is the cost everyone budgets for. The one that surprises people arrives later, the first time shares actually change hands: a founder buys out a co-founder, an angel comes in, or an employee exercises an option.
Stamp duty on a share transfer is 0.25% of the consideration or the market value of the shares, whichever is higher.
On a ₹50 lakh transfer that is ₹12,500. On a ₹1 crore ESOP exercise it is ₹25,000. Neither figure appears on any incorporation quote, because neither is an incorporation cost.
Why this one does not change by state
Stamp duty on the Memorandum and Articles is a state levy, which is why incorporating in Haryana costs ₹195 and in Punjab ₹15,025. Share transfer is different. It is charged under Article 62 of Schedule I to the Indian Stamp Act, 1899, which is the central schedule, and it applies at the same rate wherever the company is registered.
So the state you chose for the registered office, which mattered a great deal at incorporation, stops mattering here.
How the charge is calculated
| Situation | Duty |
|---|---|
| Shares sold for ₹10 lakh, book value lower | ₹2,500, on the ₹10 lakh consideration |
| Shares with ₹5 lakh book value sold for ₹20 lakh | ₹5,000, on the ₹20 lakh consideration |
| Shares transferred at nil or nominal consideration | 0.25% of market value, not of the nominal sum |
| ESOP exercised, ₹1 crore fair market value | ₹25,000, on fair market value at exercise |
The phrase that does the work is whichever is higher. Transferring shares between founders at face value to keep the paperwork simple does not reduce the duty, because the market value is what gets charged. It only makes the return harder to explain later.
Form SH-4 and the sequence that matters
The instrument is Form SH-4, the Instrument of Transfer of Securities. The sequence is the part people get wrong:
- Duty is paid and the form is stamped first
- Then the transferor and transferee sign
- Then SH-4 goes to the board with the original share certificate
- The board approves or rejects within 30 days of receipt, under Section 56(4) of the Companies Act, 2013
Stamping after execution is not a paperwork slip. Section 40 of the Indian Stamp Act attracts a penalty of up to ten times the deficient duty, and until it is cured the instrument is inadmissible in evidence.
The ESOP trap
When an employee exercises an option, duty is charged on the fair market value of the shares on the date of exercise, not on the exercise price they paid. Those two numbers are meant to diverge, that is the entire point of an option, so the duty can be many times what the employee handed over.
A ₹1 crore exercise at fair market value attracts ₹25,000 whether the strike price was ₹1 lakh or ₹10 lakh. For a pool being exercised in one window ahead of a funding round, the total is worth modelling before you design the vesting schedule, not after.
When the company can refuse
A private limited company's Articles usually restrict transfer, and that restriction is enforceable. Pre-emption rights, board approval, rights of first refusal, they all sit in the Articles that were filed at incorporation and that almost nobody reads again.
A transfer executed in breach of the Articles is not saved by having been properly stamped. Check the Articles before the SH-4 is drawn up, not after the board declines to register it.
Recovering duty you should not have paid
Section 49 of the Indian Stamp Act allows a refund where a stamp was spoiled, executed on the wrong denomination, or where the instrument was never executed at all. The application goes to the Collector of Stamps of the district where the stamp was issued, within six months of the stamp date, extendable for sufficient cause.
What to do before a transfer
- Establish the fair market value, and keep the basis on file
- Read the transfer restrictions in the Articles
- Pay duty at 0.25% of the higher of consideration and market value
- Stamp the SH-4, then execute it, in that order
- Place it before the board within a period that allows the 30-day decision
- Update the register of members and issue the endorsed certificate
Questions About Share Transfer Stamp Duty
The short version
Share transfer duty is 0.25%, charged under the central schedule, so it does not vary by state. It is calculated on the higher of consideration and market value, which means transferring at face value saves nothing.
Pay it before the form is executed. Doing it in the other order exposes you to ten times the duty and leaves a gap in the chain of title that a buyer's counsel will find.
Statutory figures on this page verified 31 August 2026. Reviewed by Anand Dhull, Advocate (Enrolment No. PH/1213/23).