Stamp duty and its importance

Whenever one buys a property or sells it, just the physical handling or transfer of possession is not sufficient. It requires proper documentation and a stamp duty. Though stamp duty is just a small step in the entire process of transfer, it is one of the important step without which effective and legal sale or transfer of property is not possible. This article discusses the meaning and importance of stamp duty in day to day life.

In simple terms, a stamp duty is a tax levied on transaction of property. The rate of stamp duty is fixed as per the property value at the time of the registration. The levying of such stamp duty is a state bound act and thereby it differs from state to state. The centre also has the power to levy stamp duties on specific instruments. In property exchanges both the buyer and the seller has to equally pay the stamp duty. The collection and rates of stamp duty is governed by the Indian Stamp Act, 1899. Section 3 of the Act extensively deals with it. If there is any delay in the payment, there will be a penalty. If the stamp duty is properly levied on the instrument, then it has evidentiary value in the courts of law.

The stamp duty is payable before executing the instrument, or on the day of execution or on the next working day of executing the agreement or instrument. The penalty in case of failure to levy stamp duty is 2Whenever one buys a property or sells it, just the physical handling or transfer of possession is not sufficient. It requires proper documentation and a stamp duty. Though stamp duty is just a small step in the entire process of transfer, it is one of the important step without which effective and legal sale or transfer of property is not possible. This article discusses the meaning and importance of stamp duty in day to day life. In simple terms, a stamp duty is a tax levied on transaction of property. The rate of stamp duty is fixed as per the property value at the time of the registration. The levying of such stamp duty is a state bound act and thereby it differs from state to state. The centre also has the power to levy stamp duties on specific instruments. In property exchanges both the buyer and the seller has to equally pay the stamp duty. The collection and rates of stamp duty is governed by the Indian Stamp Act, 1899. Section 3 of the Act extensively deals with it. If there is any delay in the payment, there will be a penalty. If the stamp duty is properly levied on the instrument, then it has evidentiary value in the courts of law. The stamp duty is payable before executing the instrument, or on the day of execution or on the next working day of executing the agreement or instrument. The penalty in case of failure to levy stamp duty is 2% to a maximum of 200% of the deficit amount.¹

If the agreement does not specifically mention who has to pay the tax, then the purchaser/ transferee is liable to pay. In case of property exchange both the parties have to pay.

The stamp duty is necessary for all agreements such as agreement to sale, conveyance deed, gift deed, mortgage deed, partition deed, power of Attorneys, leave and license agreement, lease deeds and so on except transfer by will or original nomination in a co- operative housing society.

Basically, stamp duty and stamp papers are commonly used in almost all of the commercial transactions. It was introduced by the Britisher’s. To be precise stamp duty is not a transaction duty but a document impost.

In the case of Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd. and others², the Supreme Court observed that the stamp duty on mortgage deed with security trustee to secure loans from multiple banks will be treated as distinct and thereby each of such banks had to record a separate stamp duty.

This judgment has considerable implications in the business markets and have increased the expenditure. As before it, one stamp duty was applied even when there were many parties included. However, now the position has changed.

Presently, we see a rise in the number of e- contracts and transactions. Thereby e- stamp duties are now applicable and stamp papers are easily available online.

Recently, the State of Maharashtra has reduced the stamp duty from 5% to 2% to relieve the home buyers from September 1 to December 31. This is likely to boost the residential demand. Thus, while buying or selling property, or entering into any transaction one must be aware about the current stamp duty rates and charges as it is a tax paid over and above the property which is likely to affect the property decisions and prices.

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If the agreement does not specifically mention who has to pay the tax, then the purchaser/ transferee is liable to pay. In case of property exchange both the parties have to pay.

The stamp duty is necessary for all agreements such as agreement to sale, conveyance deed, gift deed, mortgage deed, partition deed, power of Attorneys, leave and license agreement, lease deeds and so on except transfer by will or original nomination in a co- operative housing society.

Basically, stamp duty and stamp papers are commonly used in almost all of the commercial transactions. It was introduced by the Britisher’s. To be precise stamp duty is not a transaction duty but a document impost.

In the case of Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd. and others, the Supreme Court observed that the stamp duty on mortgage deed with security trustee to secure loans from multiple banks will be treated as distinct and thereby each of such banks had to record a separate stamp duty.

This judgment has considerable implications in the business markets and have increased the expenditure. As before it, one stamp duty was applied even when there were many parties included. However, now the position has changed. Presently, we see a rise in the number of e- contracts and transactions. Thereby e- stamp duties are now applicable and stamp papers are easily available online. Recently, the State of Maharashtra has reduced the stamp duty from 5% to 2% to relieve the home buyers from September 1 to December 31. This is likely to boost the residential demand. Thus, while buying or selling property, or entering into any transaction one must be aware about the current stamp duty rates and charges as it is a tax paid over and above the property which is likely to affect the property decisions and prices.

¹ What is stamp duty and why to pay it, IIFL, (Nov 12, 2022, 5: 34 pm), https://www.indiainfoline.com/article/news-sector-others/what-is-stamp-duty-why-to-pay-it-113111500056_1.html.

² Cathy Li & Farah Lalani, The Covid Pandemic has changed education forever: This is how, WORLD ECONOMIC FORUM, (Nov 25, 2021, 1:34 pm), https://www.weforum.org/agenda/2020/04/coronavirus-education-global-covid19-online-digital-learning/.