Professional Documents
Culture Documents
Land Law
Land Law
MUMBAI.
Department: LAW
Roll No: 01
Section: B
Subject: Jurisprudence
I. Introduction.
What Is Stamp Duty & Why To Pay It?
Buying a house is one of the biggest financial decisions that you will make in your
life. It is an overwhelming experience, both financially and emotionally. While buying
a house, we need to identify the property, make a down payment, apply for a loan,
sign the sale agreement, etc. One of the important step & final steps while buying a
house is the possession and registration of your property. After the property’s
possession is transferred to you, it is your responsibility to get it registered in your
name.
Possession is the physical transfer of the property, but it is not sufficient. You also
need to have legal evidence of ownership. For this, you will have to get the property
registered in your name in the local municipal records, with the seller documenting
that the property is being transferred to you. At the time of registration, you will also
have to pay stamp duty, a government tax levied on property transactions. In this
article let’s try to understand what is stamp duty, why is it essential to pay stamp
duty, and many more aspects of stamp duty.
Stamp duty is collected on the basis of the property value at the time of registration.
Stamp duties amount varies from state to state and also property types old or new.
Since it adds up to the property cost, it is better to have a fair idea before you finalize
your property deal. Stamp duty is a legal tax payable in full and acts as evidence for
any sale or purchase of a property. The levy of stamp duty is a state subject and
thus the rates of stamp duty vary from state to state. The Centre levies stamp duty
on specified instruments and also fixes the rates for these instruments.
It is a tax, similar to income tax, collected by the government. Stamp duty is payable
under Section 3 of the Indian Stamp Act, of 1899. Stamp Duty must be paid in full
and on time. If there is a delay in payment of stamp duty, it attracts a penalty. A
stamp duty paid instrument/document is considered a proper and legal
instrument/document and has evidentiary value and is admitted as evidence in
courts. A document not properly stamped is not admitted as evidence by the court.
When is the stamp duty payable?
It is payable before the execution of the document or on the day of execution of the
document or on the next working day of executing such a document. Execution of
the document means putting a signature on the instrument by the person party to the
document.
Any delay in duty payment will pull in 2% per month to the maximum of 200% of the
deficit amount of stamp duty. Stamp papers are to be purchased in the name of
either of the parties, i.e, seller or buyer involved in the agreement, failing which will
disable the stamp paper. It is said to be valid for six months from the date of
purchase, only if the duty is paid on time.
The concept of stamp duty exists till date and it is a duty payable on certain specified
instruments1 or documents. Stamps2 and the stamp papers are used in all
commercial transactions. Stamp duty is paid on the prescribed instruments including
conveyance or transfer of any movable or immovable property, such as transfer of
shares or transfer of property on the instrument or document effecting the transfer of
interest in any such property. The payment of stamp duty has been laid down in
Section 33 while the rates of stamp duty payable for different types of documents are
prescribed in Schedule I of the Act. The Act also highlights the provisions regarding
levying, collection and payment of stamp duty.
LEVY ON INSTRUMENT
Stamp duty is a levy payable on instruments specified by statute on a fixed or on ad
valorem basis. If the stamp duty is on ad valorem basis then the amount varies on
the basis of value of the products, services or property on which it is levied. It is
basically a levy on any transaction based on exchange of documents or execution of
instruments.
Additionally, as per the Indian Contract Act,1872, an oral contract by which the
parties intend to be bound is valid and enforceable.4 But there are certain
circumstances in which the law demands that contracts be compulsorily written and
registered (such as leases exceeding 11 months or a leave and licenses
agreement). This is particularly relevant in the context of e-contracts where stamping
of an e-contract poses many difficulties. (More information on this can be
accessed here)
STATE REVENUE
The stamp duty payable on documents varies across different states as levy of
stamp duty is a state subject and it is governed by the provisions of the legislations
enacted by that particular state. As India has adopted the federal structure, the
Constitution of India has provided the States with the right to levy taxes on certain
types of transaction as specified in Entry 44 of the Concurrent List. The proceeds of
stamp duty leviable in any financial year are assigned to the state. State
Governments prescribe by rule that stamps purchased in that particular state alone
should be used for execution of an instrument. Hence, the provisions relating to the
stamping of documents and the value of stamp papers required for a particular
document are provided in the stamp act enacted by that particular state legislature
and in the absence of such state legislation, the stamping is done in accordance to
the Act.
Therefore, to summarize, stamp duty is a documentary impost and not a transaction
tax. It is payable (i) prior to or at the time of execution of the document, or (ii) within
three months of the executed document first being delivered and received in that part
of India where either any conditions precedent or subsequent needs to be
performed, and/or where the property to which the document relates is situated.
As specified in question 3 of our previous blog, there are various ways of paying the
stamp duty. These modes were originated and were made stringent in their
application after the famous Telgi scam5. Central government after this scam
became vigilant and introduced certain change like the Indian Security Press now
has to mandatorily number the stamp papers serially, inserting water marks in the
stamp paper and the name of the state from where the stamp paper is being issued
or distributed by the government should be printed on the stamp paper. Any delay or
short payment on stamp duty attracts heavy penalty.
The stamp paper should reflect the name of the company/individual who is a
party to the instrument.
An instrument cannot be stamped for an amount which is lower than the value
as prescribed under the relevant legislation.
A contract of indemnity can be a sole contract and/or part of a larger general contract
between the indemnifier and the indemnified. If a contract of indemnity is contained
as a clause/article in a larger general contract, the same would also need to be
stamped additionally for the indemnity. According to the Bombay Stamp Act, 1958 a
contract of indemnity is stamped at Rs. 500/- (Rupees Five Hundred only).
Therefore, the stamp duty applicable for the indemnity needs to be paid along with
the stamp duty applicable for the larger general contract.
Moreover, in some states of India, if the agreement cover arbitration clause then the
additional stamp duty needs to be paid for the same. For eg: Under the Karnataka
Stamp Act, 1957, the stamp duty levied for arbitration clause is Rs. 200 which is to
be stamped in addition to the general requirements.
The Constitution of India empowers both the Parliament and the State
Legislature to make provisions and laws for stamp duty within its ambit. The
Indian Stamp Act, 1899 is the Central Legislation while the States have their
own local stamp acts to deal with issues arising within that particular State.
The Bombay Stamp Act, 1958 now known as the Maharashtra Stamp Act,
1958 (“MSA”) which came into force on 16th February, 1959 is the law for
stamp duty within the State of Maharashtra.
Entry 44 of List III (Concurrent List) mentions, "stamp duties other than duties
or fees collected by means of judicial stamps, but not Including rates of stamp
duty."
The inclusion of the rates on the specified documents in the Union List is with
a view to keep them uniform throughout the country. The Centre can add new
instruments to the aforementioned list only by a Constitutional Amendment. It
is also important to note that under Article 268 of the Constitution, such stamp
duties, as are mentioned in the Union List shall be levied by the Government
of India but shall be collected: in the case of Union Territories by the
Government of India; and in other cases by the states within which such
duties are leviable. Thus, the proceeds in any financial year of any such duty
leviable within any state shall not form part of the Consolidated Fund of India,
but shall be assigned to that state.
The Constitution of India, by way of the Seventh Schedule, empowers the Union
Government and the State Governments to legislate provisions regarding stamp
duties. Under Article 246, stamp duties on documents specified in Entry 91 of List I
of the Seventh Schedule (‘Union List’) (viz. bills of exchange, cheques, promissory
notes, bills of lading, letters of credit, policies of insurance, transfer of shares,
debentures, proxies and receipts) are levied by the Union. Stamp duties on
documents other than those mentioned above are levied and collected by the States
by virtue of the legislative entry 63 in List II of the Seventh Schedule (‘State List’).
Provisions other than those relating to rates of duty (which fall within the scope the
Union List and the State List) fall within the legislative power of both the Union and
the States under Entry 44 of the Concurrent List in the Seventh Schedule of the
Constitution.
The Finance Bill, 2019 (‘Finance Bill’) passed by both the Houses of the Parliament
on February 12, 2019 has, inter alia, proposed certain amendments to the Indian
Stamp Act, 1899 (‘Stamp Act’) with a view to streamline levy of stamp duties on
transactions involving financial securities. The Finance Bill will be passed once it
receives Presidential asset and is published in the Official Gazette.
Debentures:
(a) ‘Debentures’ are proposed to be excluded from the definition of ‘bonds’ under
the Stamp Act and a separate definition has been proposed to be introduced. The
newly proposed definition includes any instrument issued by a company evidencing
a debt (like compulsorily convertible debentures, optionally convertible debentures,
etc.), and short-term instruments such as certificates of deposit, commercial usance
bill and commercial papers. Under the existing Stamp Act, only debentures which
were ‘marketable securities’ were liable to be stamped under Article 27 of Schedule I
to the Stamp Act. The Finance Bill proposes to delete the reference to ‘marketable
securities’ and consequently, all debentures (whether marketable or not) will become
liable to be stamped.
(b) The existing Stamp Act provided that the stamp duty on issue of Debentures
was 0.05% per year of the face value of the debentures up to 0.25%, subject to a
cap of INR 25 lakhs (approx. US$ 35,300). The rate of stamp duty is now proposed
to be changed to 0.005% with no cap. Whether the stamp duty will be calculated on
the face value of the Debentures or whether the premium (if any) at which
Debentures are issued will also be taken into consideration is currently unclear.
(a) issuance of Securities (other than Debentures): 0.005%. Please note that only
rates of stamp duty payable on ‘transfer of shares’ is covered under the Union
List, and therefore, State Governments are entitled to prescribe rates of stamp
duty payable on issuance of shares.
Therefore, it remains to be seen whether the proposed stamp duty rates would
actually be enforceable); [Union list deals with only ‘issuance of debentures’ and not
transfer of debentures – hence the deletion.]
(b) transfer of Securities (other than Debentures): 0.015% (if on delivery basis)
and 0.003% (if on non-delivery basis);
(c) derivatives: 0.0001% to 0.003% depending on the nature of the derivative; and
(a) In cases of transfer of Securities through the stock exchange, the stock
exchange or a clearing house authorised by it will be liable to collect stamp duty from
the buyer of the Securities at the time of settlement of the transaction.
Stamp Duty
4. The tax payable on a certain and specific document is termed as stamp
duty. Stamp duty can be fixed or varied based on the value of the product.
5. Basically, stamp duty is a tax which is paid on the exchange of documents
or execution of instruments.
6. There are basically two kinds of stamp duty and they are:
7. Impressed stamp- An impressed stamp is produced by the process of
engraving or embossing. The labels in impressed stamps are affixed and
these impressions are done by franking machines in the bank.
8. Adhesive stamp- Adhesive stamps are those stamps which can be stuck
to a document using any form of adhesive. There are two types of
adhesive stamps and they are:
9. Postal stamps- Postal stamps have their limited application. Postal stamps
are used for post office related transactions.
10. Non-postal stamps- Non-postal stamps have wider application compared
to postal stamps. Non-postal stamps are revenue stamp, court fee stamp,
insurance policy stamp etc.
11. There are certain very important terms that are related to The Indian
Stamp Act, 1899. It is important for us to be aware of those terms and they
are:
12.
13. Conveyance- Section 2 (10) of the Act defines the term conveyance. It
basically includes an instrument by which property is transferred. It applies
to both movable and immovable property. Sale deed, transfer of lease,
release, settlement are all chargeable as conveyance.
14. Duly Stamped- Section 2 (11) defines this term. It means that the
instrument bears the adhesive or impressed stamp, not below the amount
essential by law and further no violation to the manner prescribed by law.
The amount of stamp to be used is governed by provisions and schedule
to the Stamp Act.
Such an expense grows with miscellaneous costs such as the registration charges
and stamps duty fees. Remembering that you can't even escape such costs when
purchasing a home is essential. They are mandatory, and every home buyer has to
pay them to finish the transfer process.
Before we delve into the tax exemption part, let us quickly discuss the stamp duty
and registration charges. Stamp duty is a form of tax imposed on any monetary
transaction to purchase a property. After the launch of the Indian Stamp Act in 1899,
this charge on the property and part of the property cost was levied. Stamp duties
are set on numerous transactions such as sale deeds, conveyance deeds, and
power of attorney papers. A person can collect property-related documents only
when the stamp duty is paid.
Also, the tax benefit or maximum deduction allowed to a home buyer for additional
stamp duties and registration charges are limited to ₹ 1.5 lakhs. Plus, it is prone to
fulfil the underlying requirements defined under this Section.
Stamp Duty Deduction under 80C
Most of us know that saving tax under Section 80C by investing in many excellent
schemes such as ELSS (Equity-linked saving scheme), PPF (Public Provident
Fund), life insurance, etc.
If your expenditure totals ₹ 1.5 lakh or more, you must stop making any more
investments, or you won't fully use the Section 80C tax saving limits.
If you are a home buyer and have to pay hefty EMIs, Section 80C could relieve you.
The EMI you pay every month has two main components: Principal and Interest.
You can claim the total principal amount you pay in one financial year as a deduction
under Section 80C from total gross income before calculating the net taxable
income. Not only individuals but Hindu Undivided Families can also claim this
deduction. You can obtain a loan certificate either from the lending bank's online
portal or directly from the branch. The certificate will indicate the total EMI you have
paid to repay the principal amount borrowed in a year.
You can also claim the payment of interest on the loan as a deduction from total
gross income under Section 24 and Section 80EE/Section 80EEA. It is subject to
some specific terms and conditions.
If you sell your house within the time frame of five years from the end of the financial
year in which the possession of the property was obscured, then the deduction you
claimed previously will be added back to your income in the year of sale.
If you plan to buy a house, you need to pay certain charges besides the cost of the
house. Income Tax Act states that any registration fee, stamp duty and other
expenses incurred while purchasing a property are entitled to a deduction from total
gross income in the financial year in which such costs are incurred.
'Other expenses' here indicates any statutory other expenditures that are identical to
registration charges or the stamp duty payable (if any applicable on the property
transfer).
Suppose you have bought a house from a Development Authority such as the DDA
(Delhi Development Authority) under the instalment finance scheme and are paying
the authority the instalment. In that case, you can claim deduction under Section 80C
against any amount paid to the principal repayment.
Eligibility for Tax Benefit on Stamp Duty and Registration Charges
As you already know, stamp duty and registration charges are an obligatory part of
all property transactions in real estate. Nonetheless, only a few categories can claim
the tax benefit available under the tax laws.
The following entities can claim tax benefits under Section 80C of the Income Tax
Act, 1961.
Individuals
Hindu Undivided Families (HUFs)
Until now, you might have got a mere idea about where stamp duty applies. It is paid
mainly for the registration of residential or commercial properties. This tax applies to
the transfer of ownership in real estate.
If you are an assessee, you can opt for stamp duty exemption up to a limit of ₹ 1.50
lakhs. Nevertheless, you can never avail of an income tax exemption on stamp duty
on land purchase.
In case you wish to be qualified for a stamp duty rebate, then you have to be a
member of HUF (Hindu Undivided Family), or an individual owner, or a co-owner
with a residential property. However, if the assessee has joint ownership, the tax
exemption could be an option for the co-owners up to ₹ 1.5 lakhs.
Well, there's no such rules or provisions that state that a person has to pay specific
stamp duty on the home loan they avail of. Besides, no term or clause states any
registration charges on home loans.
If the home buyer requires the loan, the bank can sanction it. However, it's an out-of-
pocket expense that the home buyer or property owner needs to pay later.
Every state has a different set of stamp duty fees on the purchase of the property.
Some of them allow concessions to female property buyers and senior citizens to
encourage them to buy property.
Who all can Claim Stamp Duty and Registration Charges Tax Exemption?
Any person who fulfils any of the following criteria described below can claim
deductions or exemptions on stamp duty and registration charges on the property
bought:
The assessee can claim deductions only in the year they made the actual
payments toward such expenses;
You must be a member of a Hindu Undivided Family;
If the construction of the property is done and the owner possesses the house
legally;
If the assessee has paid the amount against all such expenses;
If the house is in the name of the individual (or under your name) claiming the
exemption;
Only if you are buying a new residential property and not the commercial or
resale property;
The property must not be under-construction;
Any other entity/person must not pay the expenses;
Residential land or plots do not meet the criteria for claiming exemption under
Section 80C;
In case you are a joint owner, you can claim deductions on stamp duty and
registration charges in the fraction you share the house property with others
up to ₹ 1.5 lakh each under Section 80C;
You can't claim such charges if you or any assessee has already inhabited the
house property either partially or wholly;
If you or the assessee has paid any other expenses for the property transfer, it
will also be eligible for deduction. For instance, under Section 80C, service tax
paid can also be claimed as a deduction;
Suppose the assessee has transferred the house property within five years of
purchase. In that case, the entire deduction amount allowed will be deemed
the assessee's income in such a financial year or the previous year in which
the transfer was altered. Hence, the assessee will be accountable for paying
tax for the transfer of house property in the assessment year.
IV. Conclusion.
Apart from the discussion as mentioned above, state governments including the
Karnataka Government have initiated the concept of e-stamping. E-stamping in the
State of Karnataka is governed by The Karnataka Stamp (Payment of Duty using e-
stamping) Rules, 2009 (the Rules). According to the provisions of the Rules, any
person paying stamp duty can receive an e-stamp certificate by approaching any
approved authority (as defined in the Rules) and by furnishing requisite details, as
required under the Rules, along with the payment of stamp duty amount. Any person
can purchase e-stamp using cash, pay order, bank draft or any other mode of funds.
The Rules further provide that e-stamp certificate shall be visible in the face of the
instrument against which it is issued.
The Indian Stamp Act, 1899 (2 of 1899) is a fiscal statute laying down the law
relating to tax levied in the form of stamps on instruments recording transactions
& Stamp duties on instruments specified in Entry 91 of the Union List (viz. Bills
of Exchange, cheques, promissory notes, bills of lading, letters of credit, policies
of insurance, transfer of shares, debentures, proxies and receipts) is levied by
the Union. Stamp duties on instruments other than those mentioned in Entry 91
of the Union List above are levied by the States as per Entry 63 of the State
List. Provisions other than those relating to rates of duty fall within the legislative
power of both the Union and the States by virtue of Entry 44 of the Concurrent
List. Stamp duties on all the instruments are collected and kept by the
Concerned States.