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Stamp Duty in India: Things you need to know!

What Is Stamp Duty?

The government of India levies a tax when there is a transfer of ownership of real estate or property. This tax is referred to as stamp duty.

Stamp duty is levied on transactions involving residential property, commercial property and freehold or leasehold properties. It is imposed by states and therefore, the rates will vary from one state to another. Stamp duty is payable as per the provisions of Section 3 of the Indian Stamp Act, 1899. The extent to which the tax amount is payable depends on the value of the house or property during the time of registration. It will further vary depending on the purpose that the property serves and the type of buyer.

It must be noted that there are other documents that also require stamp duty. Besides property transactions, stamp duty is levied on shares, debentures, bill of exchange, conveyance deed, hire purchase, promissory note and movable and immovable assets, among others.

Stamp Duty Act

The Indian Stamp Act, 1899, is a fiscal statute that lays down the law with relation to the tax levied in the form of stamps on instruments recording transactions. Section 3 of the Act which reads “Instruments chargeable with duty” lists the regulations governing payment of stamp duty.

Stamp Duty Calculator

Stamp duty calculators are designed to help users assess the stamp duty applicable towards properties in different states across the nation. Individuals will have to provide details like property value and name of the state to calculate the stamp duty.

For instance: If a property of Rs. 50,00,000 is located in Maharashtra, the stamp duty value will be Rs. 1,94,000. If the property is situated is Tamil Nadu, the stamp duty value will be Rs. 4,00,000. (Source: Ready Reckoner)

Payment of Stamp Duty

Following are some of the conditions associated with payment of stamp duty:

  • Payment of stamp duty needs to be made in full and on-time. Any delays in doing so can lead to a penalty.
  • The payment needs to be made prior to the execution of the legal document, or on the day of execution or within one working day following that.
  • The buyer is generally the one who is required to pay stamp duty. However, if it is a case of property exchange, both the buyer and seller become liable to equally pay stamp duty.
  • Penalty for incomplete payment of stamp duty shall be charged at the rate of 2% per month, up to a maximum of 200% on the remaining amount to be paid.

Documents Requiring Stamp Duty

Some of the documents that require stamp duty are as follows:

  • Transfer instruments
  • Deed of partition
  • Reconveyance of mortgaged property
  • Power of attorneys
  • License agreement
  • Lease deeds
  • Mortgage deed
  • Certificates of sale
  • Gift deed
  • Exchange deed
  • Tenancy agreement

Execution of Stamp Papers

  • The stamp papers need to be purchased in the name of the buyer or seller. It will be valid for a period of 6 months from the date of purchase, provided that the duty is paid on-time.
  • The individual who is executing the document is required to cancel the adhesive stamp by writing his or her name and initials on or across it. In case this is not done, the document will be regarded as unstamped and cannot serve as proof. The stamp must be clearly visible.

Stamp Duty on Property Registration

The individual who is buying a property is required to pay a stamp duty during the time of registration of the said property. The amount will differ from one state to another.

Calculation of Stamp Duty Rates: Every state in the country has a different stamp duty rate structure. Generally, the duty is imposed on the basis of the current market value of the concerned property. The rates are assessed at the start of each year and made public via the stamp duty ready reckoner.

The government has introduced the concept of e-stamping for the purpose of determining a more accurate value of duty in case of immovable property. In certain states, like Delhi, all stamp duty is required to be paid through e-stamping. A number of parameters are taken into consideration under the e-stamping procedure to determine the stamp duty rates in a particular region.

Stamp Duty Rates in Various Cities

CityStamp duty rate
Stamp duty in Mumbai3% to 6%
Stamp duty in Pune Contnent R2C2
Stamp duty in Hyderabad4.00%
Stamp duty in Chennai7%
Stamp duty in Bengaluru5%
Stamp duty in Delhi4% to 6%
Stamp duty in Ahmedabad4.90%
Stamp duty in Kolkata5% to 7%

Source: https://housing.com/news/stamp-duty-property/

Factors Determining Stamp Duty Rate

Authorities factor in multiple parameters to calculate stamp duty charges on property transactions. Some of them have been listed below:

  • Status of the property: The age of the property has a big role to play in determining the amount that is payable as stamp duty. Stamp duty applicable on new buildings is higher than that which is applicable on old buildings.
  • Location of the property: The location where the property is situated will determine the amount that gets charged as stamp duty. Those who own properties in urban areas generally have to pay a higher sum than those with properties in rural areas.
  • Age of the owner: Some states allow discounts for senior citizen property owners.
  • Gender of the owner: Some states allow lower rates for female real estate owners. Men sometimes pay 2% as stamp duty when compared with women.
  • Purpose of the property: Owners of commercial properties are charged a higher amount than owners of residential buildings. The reason behind this is that commercial properties requires more space, security and amenities.

Tax Benefits on Stamp Duty

Stamp duty as well as registration charges are two hefty expenses that an individual will have to incur while buying a house. To provide some relief, the government has included stamp duty and registration expenses paid as part of deductions from gross income under Section 80C of the Income Tax Act, 1961, According to this section, an individual can claim a tax deduction for stamp duty, registration fee and other expenses incurred while buying a house. The maximum deduction amount that is allowed under this section is Rs.1,50,000. This deduction has to be claimed from gross total income during the financial year that the expenses have been borne. Expense for earlier years cannot be claimed as a tax deduction. E.g. Mr. X buys a property and pay its stamp duty and registration charges on 15th September 2018. He can claim a tax deduction on these expenses under Section 80C only in FY 2018-19.

Frequently Asked Questions

What is the validity of stamp papers?

With effect from 01/12/1989, the validity of stamp papers is 6 months. Stamp papers that aren't used within this time period shall be regarded as invalid.

Why is stamp duty necessary?

Stamp duty serves as an evidence for sale or purchase of a property. It can be admitted as evidence in court.

How should documents stamped with impressed stamp be written?

According to Section 13 of the Indian Stamp Act, 1899, "Every instrument written upon paper stamped with an impressed stamp shall be written in such manner that the stamp may appear on the face of the instrument and cannot be used for or applied to any other instrument." This means that the individual will need to cancel the affixed adhesive stamp by writing his or her name or initials on or across the stamp.

When can an individual ask for refund of stamp duty?

According to the provisions of the Indian Stamp Act, 1899, an individual can claim a refund of stamp duty under the following circumstances:

  • Misused stamps
  • Spoiled stamps
  • Stamps not required for use. The validity period for claiming a stamp refund is 6 months from the date of purchase of the stamp.

Can stamp duty be paid in India for documents that are executed outside the country?

Yes. According to Section 18 of the Indian Stamp Act, 1899, any instrument executed out of India "and not being a bill of exchange or promissory note, may be stamped within three months, after it has been first received in [India]."

Is stamp duty included in home loan?

No, stamp duty is not included in the home loan amount sanctioned by banks and other financial institutions. This is an out-of-pocket expense which needs to be borne by the buyer.

Can a stamp paper which has been used for one purpose be again used for another transaction?

No. A stamp paper that has already been used for a purpose cannot be used again to serve another purpose.

What are the consequences in case stamp duty is not paid?

In the event an individual fails to pay stamp duty, the document on which it is leviable cannot be accepted or received as evidence. Transactions shall not be considered as valid if done on the basis of instrument that is not duly stamped. In case the instrument is presented to any public officer, it will be impounded. Additionally, penalty will be levied.

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