Consideration Amount
Also written Consideration details
The value of an off-market transfer or pledge invocation captured in the depository system from the transferor's DIS, on which stamp duty is calculated and collected before the transfer executes.
In plain language
When shares move on a stock exchange, the price is recorded by the exchange. When they move off-market, the depository has no price unless someone gives it one. The consideration amount is that price - what the transferee paid, or is deemed to have paid, for the securities.
It matters because DPs must capture it, with evidence of payment, for every off-market sale or purchase - and because since July 1, 2020 stamp duty on securities transfers is collected centrally, and for off-market transfers the depository calculates it on this amount.
For pledge invocation, the rule differs: duty is collected from the pledgee on the market value.
How it works
From Chapter 8 (sections 8.2 and 8.3) and Chapter 9 (section 9.2.6):
Consideration details on the DIS. For all off-market transfers with reason "off market sale/purchase", DPs must capture consideration and make clients provide evidence. Mandatory payment details:
| a | Mode of payment - cash, cheque or electronic |
| b | Bank account number |
| c | Date of payment |
| d | Bank name |
| e | Branch name |
| f | Transferee name |
| g | Date of issue / transfer |
| h | Cheque / reference number |
For cheque or electronic payments, also the transferee's name, bank account number and bank name, and the transaction or cheque reference.
Stamp duty. The Government of India notified the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019, in force from July 1, 2020, so states can collect stamp duty on securities at one place through one agency.
- Duty is collected before execution of off-market transfers, from the transferor/pledgee or through their DPs.
- It is calculated on the Consideration Amount captured from the DIS.
- The amount can be captured for all types of off-market transfers, including inter-depository transfers. In NSDL, a "Without Consideration" flag exists where none is involved.
- Rates follow Schedule I of the Indian Stamp Act, which defines three categories: Debenture, Government Securities and Securities other than Debenture.
- No stamp duty on Government Securities, and the depository does not collect stamp duty for the State of Sikkim.
Pledge invocation. Under Rule 5(7) of those Rules, duty on a transfer following pledge invocation is collected from the pledgee on the market value of the securities, so consideration is obtained from the pledgee with the pledge/hypothecation form.
A worked example
Illustrative amounts; the rules are the workbook's. Stamp duty rates are not given in the workbook, so no duty figure is computed here.
Case 1 - sale. Sunil sells 1,000 shares off-market to a friend for Rs 80 each. His DIS records: reason "off market sale/purchase"; consideration Rs 80,000; mode "electronic"; the transferee's name, bank, branch and account number; date of payment; NEFT reference. His DP collects evidence of the payment. Stamp duty is computed on Rs 80,000 under the "Securities other than Debenture" category and collected before the transfer executes, which also needs his OTP.
Case 2 - gift within family, NSDL. Sunil transfers 200 shares to his daughter without payment. With a reason code where no consideration is involved, the NSDL "Without Consideration" flag can be selected.
Case 3 - Government security. He transfers 10 units of a Central Government security off-market. Consideration is captured, but no stamp duty applies to Government Securities.
Case 4 - pledge invocation. A lender invokes a pledge on 2,000 shares after Sunil's loan default. Duty is collected from the lender (pledgee) on market value on invocation, not on any loan amount.
Why NISM asks about it
Chapter 8 (Functions of DP - Trading and Settlement, 13% weightage) lists the mandatory consideration fields in section 8.2 and explains stamp duty collection in section 8.3; Chapter 9 (Pledge and Hypothecation, 10%) applies Rule 5(7) to pledge invocation. Questions test who collects stamp duty and when, the July 1, 2020 start, the three instrument categories, the G-Sec and Sikkim exceptions, and the pledgee/market-value rule on invocation.
Common exam traps
- Stamp duty is collected before execution, not after.
- Collected from the transferor (or pledgee), not the transferee.
- Off-market transfers: on the consideration amount. Pledge invocation: on market value, from the pledgee.
- No stamp duty on Government Securities, and none collected by the depository for Sikkim.
- Three categories in Schedule I: Debenture, Government Securities, Securities other than Debenture.
- Consideration can be captured for inter-depository transfers too.
- "Without Consideration" flag is an NSDL facility.
Check yourself
1.Settlement of a market transaction is done by transferring securities from a beneficiary account to a clearing member or early pay-in account. Which of the following details is mandatory for such a settlement?
- a)Consideration amount along with evidence of payment
- b)The transferee's bank account number and the date of payment
- c)Unique Client Code (UCC) details
- d)Stamp duty calculated on the consideration amount
Show the answer
Answer: (c) Unique Client Code (UCC) details
The workbook: "Unique Client Code (UCC) details are mandatory for settlement of market transactions." The UCC ties the delivery to the client on whose behalf the broker traded.
The distractors all come from the off-market side of the same chapter:
- Consideration and payment evidence (A) and transferee's bank details and payment date (B) are what the DP must obtain in the DIS for off-market transfers with the reason "off market sale / purchase".
- Stamp duty (D) is collected before execution of off-market transfers (and pledge invocations) on the Consideration Amount captured in the depository system.
A market transaction is one settled through the participation of a Clearing Corporation / Clearing House; the funds side moves outside the depository system.
2.Mr. Ramesh Gupta transfers shares off-market to Mr. Harish Nair for a consideration of ₹2,00,000, and he states the consideration on the DIS. Which statement about stamp duty on this transfer is CORRECT?
- a)It is collected from the transferee after execution, on the market value of the shares on the execution date
- b)It is collected from the transferor (or through his DP) before the transfer is executed, calculated on the Consideration Amount captured in the depository system from the DIS
- c)The depository collects it for every State, including Sikkim, at a uniform rate
- d)It is charged at the same rate whether the security is a debenture, a Government Security or an equity share
Show the answer
Answer: (b) It is collected from the transferor (or through his DP) before the transfer is executed, calculated on the Consideration Amount captured in the depository system from the DIS
The workbook: stamp duty "is to be collected before execution of off-market transfers ... It shall be collected from the transferor/pledgee itself or through their DPs before executing off-market/pledge invocation transactions ... The stamp duty will be calculated and collected on the 'Consideration Amount' as captured in the depository system based on the consideration details mentioned by the transferor on DIS."
- A gets the payer (transferor, not transferee), the timing (before, not after) and the base (consideration, not market value) wrong.
- C is wrong: "the Depository shall not be collecting stamp duty for State of Sikkim."
- D is wrong: the rate is governed by Schedule I of the Indian Stamp Act, which defines three categories — "Debenture", "Government Securities" and "Securities other than Debenture" — and stamp duty is not applicable on Government Securities.
The collection framework is the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019, in force from July 1, 2020. In NSDL, where no consideration is involved, a "Without Consideration" flag can be selected.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Delivery Instruction SlipThe signed form on which a beneficial owner instructs the DP to debit the demat account — no beneficiary account can be debited without one, whether the transfer is on-market or off-market.
- PledgeA charge created over demat securities in favour of a lender who may appropriate them unilaterally on default — created by book entry under section 12 of the Depositories Act, not by handing over anything.
- Inter-depository transferA transfer of securities from an account in one depository (NSDL or CDSL) to an account in the other, possible because SEBI regulations require the two depositories to be inter-connected.
- Invocation Request FormThe form a pledgee submits to its DP to invoke a pledge after the pledgor defaults, moving the securities from the pledgor's pledged balance to the pledgee's free balance without the pledgor's confirmation.
- Off-market transactionA transfer of securities between two demat accounts on terms agreed between the parties, settled directly through the depository without a clearing member or clearing corporation.
- PledgeeThe lender in a pledge or hypothecation — the party who confirms the pledgor's request through its own DP, and who is recorded as beneficial owner of the securities only on invocation.