Stamp duty tax is a tax imposed by the government on property transactions. When you buy any real estate property, say a house, just physical possession of the property is not sufficient. You also need to have evidence of legal ownership of the property for which you need to pay Stamp duty and registration charges.
As per the constitutional arrangement, the Stamp duty is imposed and collected by the state government and consequently, it differs from state to state. Moreover, the Stamp duty is dependent on the value of the property which in turn depends on other factors like type of the property (residential/commercial), the age of the particular property, location of the property etc. Since it adds to the overall property cost, therefore, it becomes more important to understand. Consider it as a factor in your financial planning architecture while buying any house.
1. What is stamp duty?
Stamp duty is nothing but a direct tax imposed by the government and payable under section 3 of the Indian Stamp Act, 1899 on all documented financial transactions including the bills of exchange, letters of credit, Promissory notes, letter of credit as well as Property transactions. A document on which Stamp duty is paid is legally permissible and can be presented as a evidence in the court of law.
2. When is stamp duty payable?
Stamp duty is payable before the execution of any transaction. One can also pay the stamp duty on the next working day of the date of execution of the transaction. Any further delay in the payment of Stamp duty will result in a penalty of 2% per month up to a maximum of 200% of the remaining amount. Therefore, it is advisable that the Stamp duty is paid in full and on a given time.
3. Who is liable to pay Stamp duty?
In the absence of any agreement to the contrary, it is the purchaser/ transferee of the property who has to pay the stamp duty. However, in the case of exchange of properties, both parties are obliged to pay Stamp duty equally.
4. How should one sign an instrument fixed with the adhesive stamp?
As per Section 13 of the Indian Stamp Act, 1899, any individual executing an instrument need to cancel the Stamp (adhesive) by writing his Name (Signature) across it. If the Stamp is not cancelled as mentioned, the document will be considered as Unstamped.
5. Is stamp duty payable on all the documents relating to the transfer of immovable property?
Except in the case of transfer by will, Stamp duty is payable on all transfer instruments before registration including the Agreement to sell, Conveyance deed, Gift deed, Mortgage deed, Exchange deed, Power of attorney, Tenancy agreements, Lease deed etc.
6. How the stamp duty is calculated?
Since the stamp duty is imposed by the state governments, it differs from state to state. Stamp duty basically depends on the value of the particular property. However, Property valuation is done using the guidance value method. Guidance value also known as circle rate is the minimum value of the Property at which the Property should be registered. The circle rates are decided by the competent authority under the State government. Property valuation is dependent on different factors including the Location of the property, Property type, Year of construction etc.
7. Stamp Duty Rates
Since the Stamp duty on property transactions is levied by the state governments, it differs from one state to another state. It usually varies between 5-8% of the Property value. Additionally, you need to pay about 1% registration charge over and above Stamp duty but that again may differ state wise.
8. How can I pay the stamp duty?
There are three different ways of paying the stamp duty for owning a new Property. You can pay it through Non-judicial stamp papers, E-stamping or franking. Executing the transaction on Non-judicial stamp papers is a traditional method in which an individual is required to buy a Stamp paper from an authorized vendor, write down the terms of agreement on the paper and get it signed it by both the parties.
E-stamping is a comparatively convenient way of paying the Stamp duty as it can be paid online only. Stock Holding Corporation of India Limited (SHCIL) has been appointed as the Central Record Keeping Agency for the matters related to E-stamping.
Franking includes payment of Stamp duty through an authorized bank or any franking center. Here, you need to prepare your documents first and then take it to the authorized center/bank which accepts the payment of Stamp duty and physically stamps the paper to make it legally evidentiary.
9. Tax Benefits on Stamp Duty
In case you have purchased or constructed any house property in the current financial year, then you can claim for the tax deduction under section 80 C. The stamp duty paid along with the registration charges or any other expenses related to the transfer of property. However, the current threshold of claiming tax deduction under 80C is Rs.1.5 lakhs.
Both individuals and Hindu Undivided Family (HUF) can claim for the tax deduction in Income Tax returns. However, the tax claim must be made in the same financial year in which the house is purchased or constructed. So if you have purchased your house in September 2018 then the tax deduction can be claimed only in FY 2018-19.
In case you have made any joint purchase of the property then the co-owners can claim for the tax deduction in the Annual returns in proportion to their share in the property.
Stamp duty is collected on the basis of any property value at the time of registration. Stamp duty’s amount differs from state to state and also property type 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 any legal tax payable in full and acts as an evidence for any sale or purchase of any Property. The impose of stamp duty is a state subject and thus the rates of stamp duty is different for every state. The Centre levies Stamp duty on specified instruments and also fixes the rates for these instruments.