Stamp Duty on Issue and Transfer of Shares

21 October 2020 • Pooja Dhiman

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Stamp Duty on Issue and Transfer of Shares

21 October 2020 • Pooja Dhiman

Have you issued or transferred any securities post 1st July 2020 or planning to do so? The rule of payment of stamp duty on shares has now been amended by the Ministry of Revenue.

stamp-duty-on-shares

The Central Government notified the Indian Stamp (Collection of Stamp Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 with effect from 1st July 2020.

In this article, we intend to cover stamp duty aspects in the case of the issue and transfer of shares in both, physical as well demat form. The following are the key highlights of the amendments:

HIGHLIGHTS OF THE AMENDMENTS
  • ➢ Uniform Stamp Duty across the Country.

  • ➢ Rates of Stamp Duty: It’s now 0.005% on issue of Share Certificates and 0.015% on transfer of shares. It doesn’t matter whether shares are in physical or demat mode.

  • ➢ The mechanism for payment of stamp duty on the demat securities has drastically been changed for demat shares.

  • ➢ The new system engages the framework of the Stock Exchanges and depositories for collection and onward distribution into the accounts of State Governments.

Please continue to read below where we have elaborated these amendments a little more.

  • Uniform Stamp Duty across the Country

    The power of the State Government to levy stamp duty on the issue of share certificates and transfer of shares has been taken away. Earlier, the rate of stamp duty was not uniform and it varies from state to state but now onwards, all the financial transactions will be chargeable with a uniform rate of stamp duty.

    For example: In Delhi, the rate of stamp duty on the issue of share certificates (physical or demat) was 0.1% which has now been changed to 0.005% w.e.f. 1st July 2020 and now it is uniform for all states.

  • Mechanism for payment and collection of Stamp Duty on Issue of Share Certificates and Transfer of Shares:

      • On Demat Shares: The mechanism for payment of stamp duty on the demat securities has drastically been changed. The stamp duty shall now be collected by the stock exchanges, depositories or clearing corporations and stamp duty so collected, shall be remitted to the accounts of respective State Governments and the brief of the same has been explained by the following diagram:

    stamp-duty-on-issue-transfer-of-shares
    Stamp Duty on issue and transfer of shares

    • On Physical Share Certificates: There is no change in the manner of collection of the stamp duty in case of physical shares, the stamp duty is to be paid in the existing manner as prescribed by the respective State Governments.

      For instance, for NCT of Delhi, it can be paid through the portal of Stock Holding Corporation of India Limited (SHCIL), for Maharashtra (Mumbai), it can be paid through https://gras.mahakosh.gov.in/echallan/ and for Bangalore, it can be paid through purchasing of stamp paper or by franking at the sub-registrar’s office.

  • Rates of Stamp Duty:

    Following are the pre and post amendment rates of stamp duty on issue of share certificates and transfer of shares as per schedule I of the Stamp Duty Act, 1899 (“the Act”):

    Sr No.  Particulars Pre-Amendment Post-Amendment
    1. Issue of Share Certificates Varies from state to state 0.005% for all the states
    2. Transfer of Shares in physical form 0.25% 0.015%
    3. Transfer of Demat Shares 0% (earlier, it is not chargeable to stamp duty) 0.015%
  • Stamp Duty on Issue and Transfer of Shares

    As per the latest amendment in the Companies Act, 2013, even the unlisted public companies shall require to hold and transfer its securities in dematerialized form only (Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014).

    However, no such provisions are prescribed for the private companies. Thus, physical share certificates can only be issued by private companies. However, a private limited company can voluntarily opt for dematerialized securities.

    Pursuant to the provisions of the Indian Stamp Act, 1899 the shares certificates are required to be stamped within 30 days from the date of issue of share certificates. Further, the company needs to issue the share certificates within two months from incorporation date. Where additional shares are allotted to the new or existing shareholders, the share certificates should be issued within two months from allotment date.

    • In Physical Form:

      The notified rules do not have a significant impact on the issue and transfer of share certificates in physical form. The following are the certain key points which are required to be kept in mind for the purpose of payment of stamp duty on physical shares:

      • Rate of stamp duty: The rate of stamp duty is 0.005% (issue of share certificates) or 0.015% (transfer of shares) as the case may be.

        It may be noted that in case the shares issued or transferred by the Company or shareholders up to the date of 30th June 2020, the stamp duty shall continue to be paid by existing stamp duty structure as prescribed by the respective State Governments.

      • Place of levy of stamp duty: In case of issue of shares, the place where the registered office of the Company is situated and in case of transfer, the place where documents are executed.

      • Stamp duty levy on (Value):

        Sl No. Particulars Stamp Duty
        1 In case of issue of share certificates at a price on which shares are issued
        2 In case of transfer of shares on consideration value
        3 In case of gift on Market Value
    • In Demat Form:

      The notified rules have created the legal and institutional mechanism to enable States to collect stamp duty on issue and transfer of shares at one place by one agency (through the Stock Exchanges or Clearing Corporations authorized by the Stock Exchange or by the Depositories) on one instrument.

      In case of transfer of shares in demat form through stock exchanges, the stock exchanges shall collect the stamp duty. However, in case of the initial issue of shares or transfer of shares other than through stock exchanges in demat form, the depositories shall collect the stamp duty.

    Conclusion

    The Central Government has introduced the new centralized mechanism in order to streamline the process of payment and collection of stamp duty on the securities. It will facilitate the ease of doing business and will bring in uniformity and affordability of the stamp duty on securities across States, as it will work as a great equalizer for all the States. Further, the cost of collection would be minimized while revenue productivity is enhanced.

60 comments

  1. Which would be the place for payment of Stamp duty on Share transfer if the SH-4 is Executed between two entity incorporated outside India (in Japan).

    1. Dear Reader,

      In accordance with the provisions of Section 18 of the Indian Stamp Act (hereinafter referred to as “the Act”), any instrument executed outside India, shall be chargeable with duty and shall be stamped within three months after it has been received in India.

      Further, Section 29 of the Act provides that the onus of payment of duty on Form SH-4 shall be on the person who draws or makes or executes the instruments.

      Furthermore, in accordance with the provision of Section 56 of the Companies Act, 2013, form SH-4 shall be submitted to the Indian company for the approval of transfer.

      Therefore, in the above case, considering that the payment of stamp duty is the matter of the State, the duty shall be payable in the state where registered office of the Indian company is situated.

  2. Dear,
    1. Some professionals are saying that these rules are not yet notified by the KARNATAKA Govt., hence old rate of stamp duty is applicable. Is this correct ?

    2. Can we pay stamp duty by purchasing E-Stamp Paper and executing the share transfer deed (SH-4) on the E-stamp paper ? or franking is compulsory ?

    Awaiting for your valuable reply.

    1. Dear Reader,

      As per our understanding, there is an ambiguity in the stamp duty rates charged by each state. While, the new rates of stamp duty are notified by the Central government, some states are still stamping documents at the old stamp duty rates.

      However, we have seen that, within the same state, different district registrars (revenue) have different perspectives on this matter. For example, in Bangalore, the district registrar accepts stamp duty at the revised notified rates, but in some other parts of Karnataka, stamp duty is still charged at the old rates.

      In addition, in order to pay stamp duty in Karnataka, franking of a Share transfer deed (SH-4) is required.’

  3. At present, Is stamp duty payable in case of transfer of physical shares (by affixing share Transfer Stamps) for a private limited company when the shares are transferred by executing SH-4 and it is gifted by one family member to another i.e no consideration amount will be involved?

  4. Is stamp duty payable in case of shares been transferred to the creditor in order to set off Company’s Loans with its Investments? In another way, there is no cash transaction instead the consideration amount shall be adjusted with the outstanding loan of the Company.

    Please guide.

    1. Dear Reader,

      The provisions of the Indian Stamp Act, 1899 do not expressly provide for the levy of stamp duty on the transfer of shares to creditors for settling the debt amount. Under the Indian Stamp Act, 1899 definition of the instrument includes; –

      every document, by which any right or liability is, or purports to be, created transferred, limited, extended, extinguished, or recorded;

      On perusal of this definition, the scenario where the loan amount is waived off by transfer of shares would be done under the loan waiver agreement. This Loan Agreement is extinguishing the company’s liability and creates an asset for the creditor. Hence this agreement would be liable to stamp duty.

  5. A company having registered office in U.P. and issued share certificate after right issue. Now wants to pay the stamp duty @ 0.005% on issued value. How we can make the payment in UP? shall we need to complete the paper formalities as we do in case of Delhi and Haryana or in U.P. we can just use the adhesive revenue stamp. Please clarify.

    1. Dear Reader,

      As per provisions of section 11 of the Indian Stamp Act, 1899 the instruments which may be stamped with adhesive stamps include only the transfer by the endorsement of shares in an incorporated company or other body corporates. Whereas in the issue of shares by a company the instrument which is stamped is the share certificate issued by the company.

      The payment of stamp duty, in this case, shall be the same as done in Delhi and Haryana by completing the paper documentation.

      1. Where we have to go for completing paper formalities if the registered office of the company is in Meerut. What are the documents required for completing the formalities as we are not able to find out the exact office for depositing the stamp duty. Pls help.

  6. Can Share transfer Stamp Duty on Transfer of a Delhi Registered Company be paid in Rajasthan through EGras Portal. Or it is compulsory to pay using Stock Holding Corporation of India Limited.

    1. Dear Reader,

      In case of physical transfer of shares, the stamp duty shall be payable at the place where the documents (Share Transfer Deed) are executed. Therefore, the stamp duty shall be payable at the place where the parties to the transfer are executing the documents.

      In case the documents are executed in Delhi, then the stamp duty shall be paid through revenue stamp instead through Stock Holding Corporation of India Limited.

  7. Very informative article. I have couple of queries as below:

    1. We are executing a share transfer. Purchaser is from Bengaluru, Seller is from Mumbai and the Target company is also from Mumbai. Who has to pay stamp duty, at what rate and what shall be the place of payment of stamp duty (Mumbai or Bengaluru)?

    2. In the above said transfer, there is a requirement to split the share certificates. So, should we pay stamp duty again of splitted share certificates? Please note that stamp duty was paid on original certificate.

    1. Who has to pay stamp duty?

      The provision of Section 29 of the Indian Stamp Act, 1899, states that the stamp duty shall be paid by the person who is drawing, making or executing the instrument.

      What will be the rate of duty?

      The Finance Act, 2019 has introduced the uniform rate of stamp duty for all the states. In case of transfer of shares, the rate at which stamp duty is payable is 0.015%.

      What will be the place of Duty?

      The stamp duty on the share certificate is a state matter and therefore the stamp duty shall be paid where the registered office of the company is situated.

      Duty on Split share certificate?

      As stamp duty has already been paid on the original share certificates, and there is no requirement to pay stamp duty on the split share certificates.
      However, Article 27 of the Schedule–1 of the Maharashtra Stamp Act, provides for payment of stamp duty on duplicate instrument: same as payable on the original, subject to maximum of rupees one hundred.

  8. What practice is being followed on payment of Stamp duty on share certificates in UP. Can we put revenue stamp or purchase the appropriate stamp papers accordingly. We could not see any specific mode prescribed in Stamp Act here. Can you let us know?

    1. Dear Reader,

      Subject to the provision of Section 13 of the Uttar Pradesh Stamp Act, 2008 (hereinafter referred to as “UP Stamp Act”), which states “the State Government on this behalf, may authorize any person, body or organization including Post Offices or Banks or any other financial institution to use machines for the franking impression of stamps, e-stamping, mark, seal or endorsement, indicating the payment of stamp duty on the instruments.

      In lieu of the above provision, one can opine that in U.P, stamp duty can be paid by the following means which includes Franking, impressed stamps, and e-stamping.

      Further, as per Section 14 UP Stamp Act, in certain exceptional cases*, the stamp duty payable on an instrument may also be paid in cash or by demand draft or by pay order, by challan in the banking treasury or the treasury, countersigned by an officer empowered by the State Government by notification in this behalf.

      *where the Collector is satisfied that there is a temporary shortage of stamps in the district or that stamps of the required denomination are not available.

  9. Sir
    Can I pay Stamp duty on share certificate in Maharashtra using Revenue Stamps? Capital is Rs. 1 Lakhs.
    And whether incase of share transfer “Share Transfer” Adhesive Stamps use permitted ?

    1. Dear Reader,

      There are several options for paying stamp duty in Maharashtra. E-stamping, non-judicial stamp paper, franking, notary stamp, and many others are among them.

      The department, does not consider revenue stamps to be valid proof of stamp duty paid on share certificates.

      In regard to your second question, the Indian Stamp Act, 1899, specifies the items that may be stamped with adhesive stamps, which includes share transfer.

  10. If Stamp Duty paid vide e SBTR is challan / receipt enough as proof of payment or we need to get the document franked or get something else

    1. Dear Reader,

      In Maharashtra, the payment of stamp duty can be done through various modes like eSBTR i.e., electronic Secure Bank & Treasury Receipt, franking, Non-Judicial stamp paper etc. In case, stamp duty is paid through eSBTR, the challan shall be considered as a valid proof of payment and there is no further requirement of getting the document franked.

  11. Stamp Duty on Issue of shares of Private Limited Compnay in Maharashtra paid vide eSBTR in 3 March; But franked share certificate received with date of 4 April, even though challan of 3 March. Can the date of issue on share certificates be put in 4 March as challan of stamp duty payment is in 3 March

    1. Dear Reader,

      As per section 56 of the Companies Act, share certificates are required to be issued within 2 months from date of allotment. Further, pursuant to the provisions of the Indian Stamp Act, 1899, the share certificates are required to be stamped within 30 days from the date of issue of share certificates.

      Hence, in your case, where date of payment of stamp duty is 3rd March, date of issue of share certificate has to be any date prior to this date, while keeping in mind the above time-lines.

  12. Can stamp duty on share certificate can be paid through revenue stamp in Maharashtra?
    its 5 rs for 100000 capital.
    And in case of transfer of shares “Share Transfer” stamp are valid in Maharashtra?

    1. Dear Reader,

      Yes, your understanding is correct, as per Section 11 of the Maharashtra Stamp Act (LX of 1958) read with Schedule I provided thereunder, stamp duty on share certificate can be paid through revenue/adhesive stamps. The same method shall also be applicable in case of transfer of shares.

  13. Could you please suggest as to what is the procedure for stamp duty payment (for any state) in case of Debentures? And at what rate of Stamp duty is Charged for Convertible Debentures?

    1. Dear Reader,

      Please note that the procedure for payment of stamp duty as well as rate of stamp duty on debentures shall depend on the following factors:

      A. Whether the debentures are being issued by a company or are they being transferred from one person to another;
      B. Whether they are being transferred through stock exchange or depository or not;

      We will therefore request you to clarify us on the above points, so that we are able to guide you better.

  14. Can revenue stamp be affixed on share certificates in case of Haryana or application is mandatorily required to be submitted?

    1. Dear Reader,

      In case of issuance of share certificate on fresh issue of shares following procedure has to be followed for payment of stamp duty-

      1. Prepare the relevant documents and submit the same with the revenue department at Rajeev Chowk, Gurgaon
      2. After the scrutinization of documents, the department will access the amount of duty to be paid and will pass order for payment thereon
      3. After the receipt of order, the company shall make the payment of stamp duty on https://egrashry.nic.in/
      4. Take the print out of the payment challan and submit it to the treasury department post which the treasury officer shall issue share allotment stamp duty certificate
      In case of transfer of shares, stamp duty will be paid on the instrument of transfer i.e., SH-4 which, in accordance with provisions of section 11(e) of the Indian Stamp Act 1899, can be stamped with revenue stamp (Adhesive stamp).

      Also, section 11(e) of Haryana stamp act provides that adhesive stamp can be used for stamping share transfer instrument.

  15. For share transfer in Tamilnadu, is it still valid to obtain revenue stamp as share transfer stamps? Or is it mandatory to take only e-stamp?

    1. Dear Reader,

      Please note, as per section 11(e) of the Indian Stamp Act 1899, adhesive stamps, i.e, revenue stamps are permitted for the purpose of stamping of the share transfer instrument by endorsement in case of transfer of shares of any incorporated company or other body corporate.

      Further, section 76 of the Tamil Nadu Stamp Act 2019, specifies that, notwithstanding anything contained in any law, the Indian Stamp Act 1899 shall extend to the whole of the State of Tamil Nadu so far as it relates to such documents which is not specifically excluded thereunder.

      Hence, as the provisions of the Tamil Nadu Stamp Act 2019 is silent on applicability of the appropriate mode of stamping of the share transfer instrument, we can deduce that adhesive stamps, i.e, revenue stamps are a valid means of stamping of such instrument.

  16. Is stamp duty payable on a probate of a Will? If under the Will, shares have been transferred to the legal heirs, and a deed of distribution is to be executed for that, would that attract stamp duty?

  17. Dear Concerned,
    Is this Notification Applicable to transfer of shares of Closely Held Companies as the same is not sold in Stock Exchanges?

    As the Notification reads, In exercise of the powers conferred by section 73A of the Indian Stamp Act, 1899 (2
    of 1899), the Central Government hereby makes the following rules to regulate the liability of instruments of
    transaction in stock exchanges and depositories to duty, namely:—

    It Clearly says to regulate the liability of instruments of Transactions In Stock Exchange. There fore it doesn’t apply to transfer of shares held by Closely held companies.

    Please Clarify

    1. Dear Reader,

      The Indian Stamp (Collection of Stamp-duty through stock exchanges, clearing corporations and depositories) Rules, 2019 provides for collection of stamp duty by stock exchange, clearing corporations or depositories as the case may be, for sale or transfer of securities.

      In case the shares of closely held company are in dematerialized form (electronic form) then the provisions of the aforesaid rule will become applicable and in that case the depository will be liable to collect the stamp duty.

  18. Hi, I wish to know whether a Revenue stamp is a correct/appropriate way to pay stamp duty on a share certificate. I am looking at the questions specifically in the context of Telangana.

  19. Is stamp duty payable on transfer of shares undertaken as a result of offer for sale (OFS) during an IPO?

    1. Dear Reader,

      Pursuant to the recent amendments introduced by the Finance Act, 2019 which came into effect from 1st July, 2020, in the case of transactions arising from offer for sale executed through a stock exchange or through a depository, the stamp-duty shall be collected from the offeror, on the offer price. The stamp duty will be payable once the offer is successfully completed.

  20. Dear All,
    Just for the information I would like to ask you one question

    At the time of incorporation of company, stamp duty is paid.

    Is it necessary to pay the stamp duty at the time of issuance of share certificate to the promoters / directors only within 1 month from date of incorporation ?

    1. Dear Reader,

      Yes, your understanding is correct, pursuant to the provisions of the Indian Stamp Act, 1899, the share certificates are required to be stamped within 30 days from the date of issue of share certificates. The stamp duty which is paid at the time of filing of incorporation forms is on AOA and MOA not on the share certificates.

  21. Very informative page.

    Is there any STAMP DUTY payable for LEGACY– against Succession certificate (Transmission of shares of the deceased to legal heir) if any rate and value to be considered–is it face value of share . Transfer or TRANSMISSION vary .kindly guide. I am from DELHI

    1. Dear Reader,

      Please note that as per Section 3 of the Indian Stamp Act, 1899 (“the Act”), stamp duty is payable on the instrument executed for the various purposes mentioned in the schedule of the Act, for instance- transfer, sale, etc. However, at the time of transmission of the shares of a company, the transferee is not required to execute any kind of instrument.

      The legal heir is just asked to submit certain documents (may vary from company to company as the list of documents is not specified in the Companies Act, 2013) to the board of the company for the purpose of supporting his claim to the shares, he/she is also not required to pay any consideration for the same.

      Thus, as per our understanding, no stamp duty shall be payable in such cases.

  22. Hi Sir,

    We have recently incorporated Pvt Ltd company.
    Professionals are issued share certificate but not printed on the stamp paper.

    We are planning to close the company after 1 year of incorporation.

    So kindly let us know if it’s really required to print the share certificate on stamp paper. What is the consequences if not printed on stamp paper.

    1. Dear Reader,

      Pursuant to the provisions of the Indian Stamp Act, 1899, the share certificates are required to be stamped within 30 days from the date of issue of share certificates. Thereafter, the Company needs to deliver the share certificates to the member within two months from the date of incorporation. Hence, it is mandatory to stamp the share certificate before delivering it to the member.

      However, in the event of non-payment of stamp duty or evasion of payment of stamp duty on the issue of a share certificate, the company shall be liable to a penalty which may extend to 10 times of duty. Also, the company and its officers may also be issued a notice for hearing by the competent authority.

  23. Mr. A has received listed shares worth INR 1,00,000 from sister Ms. B (blood relatives) on Jan 2022 as a gift.
    Does this transaction attract stamp duty ?
    If yes what will be the stamp duty rate ?
    Stamp duty payable by Mr. A or Ms. B ?

      1. Does it make any difference on stamp duty payable, if company is closely held public company ?
        Is gift deed is mandatory for gift of shares ? If yes, pl advise on stamp duty.

        1. Dear Reader,
          Please note, while the provisions for levy of stamp duty on issue and transfer of securities is provided separately for transactions dealt through stock exchanges or depositories and for transactions other than through stock exchanges and depositories, under section 9(A) and 9(B) of Indian Stamp Act 1899 respectively, the rate of stamp duty applicable is uniform.
          With respect to your query on gift of shares, notably, it is not mandatory to execute a gift deed for this purpose. However, it is suggested to execute a gift deed so as to create a legal record evidencing the transfer.
          Further, FAQ No. 24 issued by Government of India on Indian Stamp Act, 1899 Amendments and Rules, states that there shall not be any levy of stamp duty on gift of shares as the same could be deduced from Section 21 of the Amended Indian Stamp Act read with sub-section 16B of Section 2 which clearly indicates that stamp duty collected is determined as per the market value which is based on price or consideration involved.

  24. Whether stamp duty on share certificate is to be paid on face value of share certificate or on face value +share premium.

    1. Dear reader,

      Section 9B of the Indian Stamp Act, 1899 lays down that stamp duty on issue or transfer of securities otherwise than through a stock exchange or depository, shall be payable at the rate specified in Schedule I.

      Pursuant to Section 9B (a), it is pertinent to note that stamp duty on share certificates must be paid on the total market value of the securities so issued at the rate specified in Schedule I, in layman’s terms, this means that stamp duty must be paid on the total value of the certificate, which includes the face value as well as the securities premium.

  25. In Maharashtra also, 0.005% is to be paid on issue of share right? Rate as per state act will not prevail ? I need clarification as one of my consultant is saying for 0.005% and other for 0.001%?

    Please help

    1. Dear reader,

      With effect from July 1, 2020, the stamp duty rate on the issue of share certificates, whether physical or demat, is uniform across the country.

      The prescribed rate of stamp duty on the issue of shares is now 0.005 %, and irrespective of the state, this is a uniform rate of stamp duty that will be imposed across the country.

  26. what does consideration mean. In case of a private company, is the company required to have valuation or it can quote consideration as face value irrespective of free reserves of the Company.

    Please guide

    1. Dear Reader,

      Please note that the Indian Stamp Act 1899 has not defined the term “Consideration”. As per section 9B (b) of the Indian Stamp Act, 1899, “when any sale or transfer or reissue of securities for consideration is made otherwise than through a stock exchange or depository, the stamp-duty on each such sale or transfer or reissue shall be payable by the seller or transferor or issuer, as the case may be, on the consideration amount specified in such instrument at the rate specified in Schedule I.”

      As the given question relates to the transfer of shares of a private company, the procedure shall be governed by the provisions of the Companies Act, 2013, however, the aforementioned law is also silent on the definition and constitution of the term “Consideration” for the purpose of the transfer.
      Therefore, we understand that the parties may quote consideration as face value irrespective of free reserves of the company, while keeping in mind the tax implications under the Income Tax Act, 1961.

  27. Can you please quote where it has been written that stamp duty on physical transfer of shares to be paid through earlier ways at new rate.

    1. Dear Reader,

      The Central Government through Finance Act, 2019 has amended several provisions of the Indian Stamp Act, 1899 (“the Act”) along with the Schedule I of the Act (Article 56A in this case).

      However, the above amendment has not introduced any amendment in the provisions of Section 10 of the Act, which specifies the manner of payment of stamp duty in case of physical transfer of shares.

      As per Section 10(1)(b) of the Act, “where no provision for payment has been provided, all duties with which any instruments are chargeable shall be paid as the State Government may be rule direct.”

      Since there has been no amendment in the manner of payment of stamp duty in case of physical transfer of shares, we can infer that the stamp duty in such cases shall continue to be paid in the existing manner at new rates.

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