Section 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 2 of the Indian Stamp Act, 1899 defines the commercial paper that attracts duty under the Act. This article covers clauses (2), (3), (7) and (22) for bills, cheques and notes, clause (4) for the bill of lading, and clauses (19), (19A) and (20) for policies of insurance. Several of these definitions start from the Negotiable Instruments Act, 1881 and then widen it.
A "bill of exchange" under the Act is a bill as defined by the Negotiable Instruments Act, 1881 and also a hundi and any other document that entitles or purports to entitle a person to be paid or to draw on another for money. A "cheque" is a bill drawn on a specified banker and payable on demand. "Policy of insurance" covers indemnity cover and personal insurance. These instruments are among those for which the Central Government is "the Government" under section 9(2), so the central Schedule's rate is the starting point.
How to read this article
This article is based on the consolidated text of the Act consulted (latest amendment shown: Act 13 of 2021); later amendments should be checked. It explains the central Act only. Stamp duty on most instruments is fixed by the law and schedule of the State where the instrument is executed, so the State must be checked; for the instruments named in this article, section 9(2)(a) puts the rate with the Central Government, and any reduction or remission under section 9 and later amendments should be checked as well. If you are structuring a loan with notes or bills, our loan documentation support can help you see which paper is being created.
The Negotiable Instruments Act, 1881 is explained in its own posts on this site. The Stamp Act takes its starting point from that Act but this article states nothing from inside it. See the posts on the promissory note, the bill of exchange and the cheque under that Act for what those terms mean there.
Clause (2): "bill of exchange"
The Act's meaning has two layers. It means a bill of exchange as defined by the Negotiable Instruments Act, 1881 (26 of 1881). It "includes also a hundi, and any other document entitling or purporting to entitle any person, whether named therein or not, to payment by any other person of, or to draw upon any other person for, any sum of money".
The second layer is the important one for a drafter. A document does not have to meet every test of the Negotiable Instruments Act to be a bill of exchange here. If it entitles, or purports to entitle, a person to be paid or to draw on someone for a sum, it is caught, and it does not matter whether the person is named.
Clause (3): "bill of exchange payable on demand"
The term "includes":
- (a) an order for the payment of any sum of money by a bill of exchange or promissory note, or for the delivery of any bill of exchange or promissory note in satisfaction of any sum of money, or for payment out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen;
- (b) an order for the payment of any sum of money weekly, monthly or at any other stated period; and
- (c) a letter of credit, that is to say, any instrument by which one person authorises another to give credit to the person in whose favour it is drawn.
So a standing order to pay a fixed sum every month is, for this Act, a bill of exchange payable on demand, and so is a letter of credit.
Clauses (7) and (22): "cheque" and "promissory note"
- Cheque (clause 7): a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
- Promissory note (clause 22): a promissory note as defined by the Negotiable Instruments Act, 1881 (XXVI of 1881). The clause adds that it "also includes a note promising the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen".
Because a cheque is defined as a kind of bill of exchange, anything said about bills of exchange in the Act reaches cheques unless the section singles them out. Footnotes elsewhere in the Act show that the word "cheque" was omitted from several sections by Act 5 of 1927; that is why some sections name bills and notes but not cheques.
Clause (4): "bill of lading"
A "bill of lading" includes a "through bill of lading", but does not include a mate's receipt. The clause ends with a colon in the copy consulted.
Clauses (19), (19A) and (20): policies of insurance
| Clause | Term | What the text says |
|---|---|---|
| (19) | 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 |
| (19A) | Policy of group insurance | any instrument covering not less than fifty or such smaller number as the Central Government may approve, either generally or for a particular case, by which an insurer, for a premium paid by an employer or by an employer and employees jointly, engages to cover the lives of all the employees or any class of them, for the sole benefit of persons other than the employer, for amounts based on a plan which precludes individual selection (inserted by Act 43 of 1955, section 4) |
| (20) | Policy of sea-insurance or sea-policy | (a) insurance on any ship or vessel (marine or inland navigation), its machinery, tackle or furniture, goods or property on board, freight or any other interest lawfully insurable; (b) includes insurance of goods for a transit that includes a sea risk and also other risk incidental to the transit from the start to the ultimate destination covered |
Clause (20) ends with a deeming rule: where a person, for a sum paid or to be paid for additional freight or otherwise, agrees to take on any risk attending goods on board a ship, or engages to indemnify the owner against risk, loss or damage, "such agreement or engagement shall be deemed to be a contract for sea-insurance". In clause (19), the copy shows that "and" and a clause (c) were omitted by Act 5 of 1906, section 2; this article says nothing about what was removed.
A worked example
Orchid Foods Private Limited gives its supplier a letter authorising the supplier to draw on its bank account up to a stated limit, and separately signs a standing order to pay a fixed sum on the first of every month. Under clause (3), both fall within "bill of exchange payable on demand" (the letter as a letter of credit under (3)(c) if it authorises credit to the person in whose favour it is drawn, and the standing order under (3)(b)). The company also takes a cover that pays for loss of goods during transit by road and sea. Clause (20)(b) treats insurance of goods for a transit that includes a sea risk and other incidental risks as sea-insurance, so the company should not assume a "marine" label is needed. Which Article applies and at what rate is for the central Schedule for these Union instruments, with any reduction under section 9 to be checked.
Need help with loan and security paper?
Lenders and borrowers often create notes, orders and letters of credit without noticing that each is a separate instrument for the Act. If you are putting together a facility, a loan documentation support review can list the instruments that your structure creates, so that each is identified before execution.
Key takeaways
- The Act's "bill of exchange" includes a hundi and any document that entitles or purports to entitle a person to payment or to draw for a sum.
- A letter of credit and a periodic payment order are bills payable on demand.
- A cheque is a bill drawn on a specified banker and payable on demand.
- A promissory note includes a note payable out of a particular fund or on a contingency.
- Policies of insurance include personal insurance, group insurance and sea-insurance, each defined separately.
Read next
- Section 2 of the Indian Stamp Act, 1899: instrument, executed, duly stamped and stamp
- Section 19 of the Indian Stamp Act, 1899: bills of exchange and promissory notes drawn outside India
- Section 2 of the Indian Stamp Act, 1899: securities, stock exchange, depository, debenture and market value
- Stamp duty on promissory note and bill of exchange
Disclaimer: Based on the consolidated text of the Indian Stamp Act, 1899 published by the Department of Revenue, whose latest amendment shown is Act 13 of 2021, as consulted on 2 October 2026. Only the central text is covered: stamp duty on most instruments is fixed by the law and schedule of the State where the instrument is executed, and State amendments, rules, notifications and later amendments should be checked. This article is general information, not legal advice; check the official text before acting.