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Know About Stamp Duty

By 16/11/2018Posts

Possessing a property by means of a sale agreement is not enough. You must prove that you are the owner and the means to do this, legally, is registering the property after paying the due stamp duty.

Stamp duty is a type of tax that must, inevitably, be paid on any instrument relating to a property transaction in India. Avoiding or under-paying it could lead to serious consequences for the buyer who is, generally, the one to pay this tax. Introduced in India by the British under the Indian Stamp Act in 1899, it is still relevant and enforced though with some amendments to the act made at various times.

Both the central and the state governments levy the stamp duty for transactions that come under their purview. The central government fixes stamp duty on Bills of Exchange, Cheques, Promissory Notes, Bill of Landing, Letter of Credit, Insurance policies, Transfer of Shares, Debentures and Receipts. The state governments levy stamp duty on Sale Deed, Gift Deed, Deeds of Mortgage and Lease, License, Settlement, Partition Deed etc.

Unfortunately, the percentage of stamp duty is not the same across the different states in India. Each state government has its own stamp duty law and therefore, before a buyer enters into any transaction, he would do well to check the stamp duty rates leviable on the instruments, stated above, that come under the particular state government’s purview. Stamp duty is not levied on a transaction, but is levied on an instrument.

It must be noted that an instrument cannot be registered unless the relevant stamp duty is paid and without the instrument being registered it has no evidentiary value for the purpose of a legal recourse. The state of Tamil Nadu has brought in significant changes to the stamp duty and registration process by various amendments.

Previously, stamp duty was calculated @ 6% for all property transactions. The stamp duty was levied on the Undivided Share (UDS) of the property. That is, if a building with 10 equal sized apartments is built on 5000 sq. ft of land, the UDS for each apartment would be 500 sq. ft. Only the sale deed for the UDS was registered while the developer entered into a separate construction agreement which need not be registered. This provided a loop hole for developers to evade stamp duty on the built up area.

The Tamil Nadu government made amendments to the stamp duty and registration fees to plug this anomaly. Accordingly, the stamp duty has been split up into 5% stamp duty, 2% transfer duty and 1% registration fee. This has plugged the loophole as the apartment buyers, who until now, registered only the undivided share of the land (UDS) must now necessarily register their construction agreement also and pay two per cent additional charges towards it. Now the buyer pays stamp duty on the UDS (5% + 2% + 1%), and 2% of the cost of construction, to register the construction agreement. The registration charge for the UDS is based on the guideline valuation of the area while for the construction agreement it is based on the cost of the apartment (total cost less the UDS value) and other inclusions, if any, as stated in the agreement.

Besides, the construction agreement must be registered within 120 days after signing the construction agreement. All construction agreements signed after September 30th, 2013 falls under this purview. Any delay in payment of the stamp duty will invite a penalty of 2% every month to a maximum of 200% for any unpaid amount.

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