Stamp Duty is a charge levied by the state government for registering any kind of property each time there is buying, selling, leasing, or renting. Stamp duty is calculated based on the circle rate. It can be done offline on non-judicial stamp paper and online by the franking method through banks. The registration fee also has to be paid along with stamp duty. There is a ready reckoner for paying both the stamp duty and registration charge. These procedures need to be followed each time there is a transfer of property.
What is Stamp Duty?
Stamp duty is the duty charged by state governments as per the provisions of the Stamp Duty Act 1899. There is a wide variation in Stamp duty in different states. Stamp duty needs to be paid each time there is a property transaction.
Judicial and Non-judicial Stamp Duty
There are two types of stamp duty. Judicial Stamp duty is also known as court fees that are charged to litigants for conducting their cases. Non-judicial stamp duty is charged on the transaction of property and is one of the chief sources of revenue for states.
What is Registration Charge
A registration fee is a charge whose rate is fixed by the Central and collected by state governments. Registration charge is the amount charged by the government to update transaction records of a property in the government data bank.
Who Imposes Stamp Duty?
Stamp duty is imposed by state governments as per the Stamp Duty Act 1899.
The state-wise difference in property registration charges
Property registration charges vary from state to state and are high in the states of Tamil Nadu, Assam and Madhya Pradesh and as low as 3% in Maharashtra. A study and survey by IIM Bangalore along with the National Housing Board has reported that stamp duty and registration charges in India are among the highest in the world. These organisations have urged state governments to reduce stamp duty charges which continue to remain high although there are several housing schemes for the poor such as the PMAY (Pradhan Mantri Awas Yojana)
Who should pay stamp duty and registration charges?
Stamp duty and registration charges are mostly paid by the buyer of a property though it is not specified who has to pay.
Stamp Duty Calculation
Stamp duty is calculated as a percentage of the circle value of a property. Circle value is imposed by the government and may be higher than the market value of the property. The percentage varies from state to state. If there is both a market value and circle value, the higher of the two is considered for calculation.
Factors considered for stamp duty calculation
The different criteria on the basis of which stamp duty is calculated are the location of the property, age and gender of the owner, type of property (residential, commercial or agricultural) and amenities within the residential complex of the property.
Stamp Duty for women
At present, there is a stamp duty concession permitted in the states of Delhi and Uttar Pradesh only. In Delhi, stamp duty is reduced from 6 % to 4% if the property is registered in the name of a woman. In Uttar Pradesh, a rebate of 1% is permissible for women upto a property value of ₹10 lakhs only.
Stamp duty in the Key Indian States
Stamp duty rates vary from state to state. A few states have reduced stamp duty due to the COVID-19 pandemic. The Stamp Duty is highest at 9.5% in Madhya Pradesh followed by 8.25% in Assam and 8% in Kerala. Stamp duty rates are 7% in Tamil Nadu, Punjab, Haryana, Uttar Pradesh and West Bengal. However, stamp duty rates are 6% in Himachal Pradesh, Rajasthan, Chandigarh and Bihar. Stamp duty rates are lesser at 5% in Andhra Pradesh, Uttarakhand and Odisha, 4.9% in Gujarat, 4% in Jharkhand and Telangana. The lowest stamp duty is in Maharashtra.
Stamp Duty Rates in Top Cities
Stamp duty rates vary in different cities. It is highest at 7% in Chennai, 4% to 7% in Kolkata, 3% in Mumbai and Pune, 4% to 6 % in Delhi, 2% to 5% in Bangalore, 4% in Hyderabad and 4.9% in Ahmedabad.
Stamp duty and registration charge example
Hypothetically, if a person is buying a property for 25 lakhs in Delhi. The stamp duty will be charged 6%, the person will need to pay ₹1.5 lakhs. If he buys the property in his wife’s name, the stamp duty becomes 4% and comes down to ₹1 lakhs. However, the registration fee is ₹40000 either way.
Documentation required for payment of stamp duty
The documents that are required for stamp duty payment include the sale deed, khata document, NOC from house owner’s society, conversion order from agricultural to residential property, last 3 years’ tax paid receipts, encumbrance certificate, joint development agreement between builder and owner, the record of rights or 7/12 extract, possession of occupation by builder, sanctioned building plan (For building or apartment), copies of previous agreements (for a resale property), title documents of the landowner and bank statements in case of any outstanding loan on the property.
How is Stamp duty paid?
Stamp duty can be paid by the following methods:
By non-judicial stamp paper offline- In this method, the property details are mentioned in an application form on non-judicial stamp paper, signed by the executants and submitted to the sub registrar’s office. Once approved, the applicant will need to buy stamp paper of the value of the duty from the treasury of the state if the value is more than ₹50000.
Franking Method- In this method, the agreement for the sale of a property is made on plain paper and submitted to a bank authorised for this purpose. The bank processes the documents through a franking machine and then stamps the property purchase document with a seal, authenticating the payment.
E-Stamping Method- The E stamping method is becoming very common and is being implemented by most states. The states have developed their own portals where stamp duty and registration charges can be calculated and paid online. The documents and receipts can then be downloaded and presented to the sub registrar’s office for authentication.
Why is stamp duty evasion so common in India?
Stamp duty evasion in India is common for two reasons. The first is the high rate of stamp duty which varies from state to state. Stamp duty has become all the more expensive because they are calculated on the basis of circle value. As the circle value is set by the government and circle values of the property are mostly higher than the actual market value, this is another reason for stamp duty being so high.
The second reason for the evasion of stamp duty is the low legal power it enjoys. Paying stamp duty is not considered proof of ownership and other documents such as a deed and an encumbrance certificate have more legal weightage in legal disputes over ownership.
The government needs to reduce the high rate of stamp duty and provide more legal weightage to this document to eliminate evasion of payment.
Capital Gains and Stamp Duty
Stamp duty rates have become the basis of capital gains valuation. This was introduced as section 50C of the income tax act in 2017. There were subsequent amendments to this section and today a variation of upto 10% difference stamp duty value and actual sale value is allowed for the calculation of capital gains.
What if you Evade Stamp Duty?
There are often attempts to evade stamp duty by undervaluing property. This is a form of tax evasion and leads to penalties if and when detected. With the introduction of circle values, however, it has become difficult to undervalue the property.
There are heavy fines and penalties on evasion of stamp duty. The penalty rates vary from state to state. The penalties are between 8% to 20% of the actual stamp value. In some states, penalties can include imprisonment as well.
How to save on Stamp duty charges?
There are several ways to save on stamp duty charges. The first is to register property in the name of a woman relative, thus, stamp duty will become less.
Another way is to buy property in an area when there are options and choose the area where stamp duty is the least. Stamp duty can also be saved by buying property in areas where there are less facilities. For instance, stamp duty will be more in residential colonies with swimming pools, games courts, gyms, and elevators. One can save on high stamp duty by buying property in areas where there are lesser amenities.
Stamp duty can be saved by buying property in rural areas. There are several states such as Haryana where stamp duty charges are much less for property in rural areas.
Another way to save stamp duty is to look for property in areas where there are waivers and rebates on stamp duty. A good time to buy property is when stamp duties have been reduced in many states as relief from COVID -19.
Tax benefits on Stamp Duty Registration Charges
There are tax benefits for payment of stamp duty and registration charges. Tax benefits are given under Section 80C of the income tax act. There is, however, a limit upto ₹1.5 lakhs only. Moreover, Section 80C covers investments in LIC premia, national Savings certificates, deposits in provident funds and children’s education. The rebate on payment of stamp duty and registration charges are acceptable only if the homeowner has paid from his or her own funds.
Home Loan, Stamp Duty & Registration Charges
Home loans do not cover the cost of stamp duty and registration charges. In fact, home loans do not even cover the cost of the property. Most home loans pay 80% of the property cost. This means that prospective home buyers need to arrange for the cost of stamp duty and registration charges as well as 20% of the property cost.
The rate is presently prevailing for both urban as well as rural property.
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Frequently Asked Questions (FAQ's)
Do I need to pay stamp duty on property taken by me on lease?
Yes. Stamp duty is required for any kind of arrangement, whether it be a sale, lease or even a rent agreement.
Is stamp duty calculated on the basis of the actual transaction value of the sale of a property?
Stamp duty is calculated from the valuation of the property. This property can be the actual transaction value provided and it is more than the circle value of the area. Any transaction value below the circle value is not permitted. In the recent budget, however, the government has allowed an actual valuation up to 20% less than the circle value.
For paying heavy stamp duty cat I get a loan.
Most home loans do not cover stamp duty. Most home loans pay up to 80% of the cost of the property and a few give up to 90% but none of them covers the Stamp duty cost. You can, however, apply for a personal loan from a bank and pay stamp duty with that loan amount.
Why did the bank refuse a home loan on the basis of a partial occupancy certificate given by the builder of my apartment?
Banks only consider full completed occupancy certificates. The fact that your builder has given you a partial occupancy certificate indicates that his project is still not complete. You can ask the builder to give an agreement, promising the occupancy certificate will be issued within the year. A few banks allow loans on the basis of this agreement
Is there any rebate on Stamp duty on houses given to the poor under PMAY
The PMAY is a credit-linked subsidy scheme and provides financing for economically weaker sections for home financing but does not directly offer any waiver or rebate on stamp duty. There are some benefits for women, but these are for lower interest rates only.