Buying a new home is a monumental feeling. The joy of achieving this feat, no matter at what age, knows no bounds. The excitement is palpable as you can’t wait to get the keys to your new abode.
However, only the physical possession of a home doesn’t entail complete ownership of the property. A slew of documents is required to fill up that indicates the title of the property clearly.
For the record, the legal ownership of a property is only approved after the buyer pays stamp duty and carries out the subsequent registration paperwork.
A Stamp duty is thus an unavoidable part of the legal process of owning a home. For the uninitiated, we have decided to unravel everything related to stamp duty to keep you away from any gimmicks or pitfalls during the legal documentation process.
What is Stamp Duty?
A Stamp Duty is a property tax paid to the government and is levied on all property transactions, residential, commercial and on freehold & leasehold properties. It is a legal evidence of a property that involves two or more parties and is bought either in the name of a seller or a buyer.
Payment of stamp duty is compulsory as per the provisions of Section 3 of the Indian Stamp Act, 1899. The amount of stamp duty payable depends on the total value of the property during the time of registration, the rate of which varies from state to state. Apart from properties, stamp duty is paid on conveyance deeds, promissory notes, shares & debentures, bill of exchange, immovable assets, etc.
When do you have to pay stamp duty? What are the penalties levied in case of a delay?
A stamp duty has to be paid in full either on or before the date of the legal transaction. The legal transaction takes place after the parties in the agreement have signed the document and paid the stamp duty henceforth. In most cases, it’s the buyer who pays the stamp duty, though during property exchange cases the fee is borne both by the seller and the buyer.
A delay in payment of stamp duty attracts a penalty of 2% per month on the deficit amount of the stamp duty to a maximum of 200%.
How is stamp duty calculated?
The stamp duty is calculated on the market value or the agreement value of the Property, whichever is higher. For example, if the market value of a property is 60 lakhs and the agreement value is 50 lakhs, the stamp duty will be levied on the higher value, that is 60 lakhs.
Also, in the case of apartments, the stamp duty has to be paid on the basis of Undivided Share (UDS) of the Property. For instance, if there are five apartments of the same size on a total of 7000 sq ft of land, then respective owners of each apartment need to pay stamp duty for 1000 sq ft area.
The amount of stamp duty paid varies from state to state and depends on the following factors:
- Status of the property: Old or new property
- Gender of the owner: Some states offer concessions on stamp duty if the owner of the property is a female.
- Location of the property: Stamp duty charges are different in cities, rural areas, metropolitans and suburban areas.
- Usage of the property: Whether it is a commercial property or residential one. Commercial properties attract higher stamp duties.
- Type of property: apartment, independent house or a complex.
- Age of the owner: In some states, concessions are doled out for senior citizens.
What are the documents required in case of payment of stamp duty?
- Transfer instruments
- Deed of Partition
- Power of Attorneys
- License Agreement
- Mortgage Deed
- Reconveyance of mortgaged property
- Certificates of Sale
- Exchange Deed
- Gift Deed
- Tenancy agreement
- Lease Deeds
How to pay Stamp Duty?
There are three official ways for payment of stamp duty.
- Physical Stamp Paper: This is the most common method for filling stamp duty charges. Here you need to purchase a non-judicial stamp from a licensed vendor. All the details of the agreement will be printed or written manually on the stamp paper upon its purchase. The value of the stamp papers matches the stamp duty that is applicable. The document is signed by the parties after thorough checking of the contents.
- Franking: In this method, an authorized franking agent puts a stamp on the document indicating that the stamp duty has been duly paid. This process is usually carried out by a bank. So, it is imperative that you visit an authorized bank with a franking agent and get the document stamped before the transaction is done. After the payment of stamp duty, a special adhesive stamp is put on the document.
- E-stamping: E-stamping was introduced by the government to check fraudulent stamp duty procedures with counterfeit stamp papers and to make filing of stamp duty easier. This method has gained recognition and is used strictly in almost all states. The official vendor of e-stamps is Stock Holding Corporation of India Limited (SHCIL).
To obtain an e-stamp, you have to pay a visit to the SHCIL website and choose your respective state to check whether e-stamping is allowed. You will find every information here relating to the list of transactions and the collection centres.
Payments for the e-stamps can be duly made through credit/debit cards, online banking, demand drafts, and cheques.
What are the types of stamps used in India?
- Adhesive Stamps: These sticky stamps are put on the stamp duty documents or instruments. They are of two types-Postal and Non-Postal Stamps.
- Impressed Stamps: These are labels that are affixed on the stamp paper by an official conducting the stamp duty process. They are embossed on the documents with the help of franking machines.
Stamp Duty rates in different cities
|City||Stamp Duty Rate(2020)|
- What is the validity of a stamp paper?
The validity of a stamp paper is 6 months. One has to use a stamp paper within this period.
- How to save on stamp duty?
Register the property in the name of a female member of your family. Some states give concessions on stamp duty for female real estate buyers.
- Is stamp duty necessary?
Stamp Duty acts as an evidence of the rightful owner of the property and helps in the sale or purchase of a property. In legal battles, stamp duty can be produced in court as evidence.
- What is the procedure for registration of documents after stamp duty has been paid?
Once the stamp duty is paid, the document should be registered in accordance with the provisions of the Indian Registration Act. Both buyer and seller have to be present during the registration process. a serial number is issued after the registration is complete.
- When can an individual ask for a refund of stamp duty?
According to the regulations of The Indian Stamp Act, 1899, an individual can ask for a refund of stamp duty if the stamps are misused or spoiled or have expired their term of 6 months.
- Can a stamp duty be paid in India if the documents are signed outside India?
The Indian Stamp Act, 1899 says that any instrument signed outside India, which is not a bill of exchange or promissory note can be stamped within 3 months after the instrument has been received in India.
- Can a stamp duty be used for one transaction be reused for another transaction?
No, a stamp duty can be used for only one transaction.
- What will happen if the stamp duty amount is found inadequate?
It is a serious offense to pay a deficit amount for stamp duty of your property. One can face heavy penalties or imprisonment too.