This article is written by Kshitij Pandey, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from Lawsikho.
Stamp duty is an indirect tax levied by the state governments on the execution of instruments involving the exchange of movable and immovable properties and the creation of rights or liability on all property transactions. In a simple term, ‘stamp duty’ refers to a tax payable on any transaction for the exchange of documents or execution of instruments, according to the relevant laws by the appropriate government. The earnings from the levy of stamp duty during a financial year are allocated to the state. Though the main objective of enacting the Indian Stamp Act, 1899 was to earn revenue for the government, with the passage of time, the payment for stamp duty has become a means of enhancing legal validity of the document related to transfer of property etc.
Laws in India related to stamp duty
Stamp duty is governed by the Indian Stamp Act, 1899 (ISA,1899). In India, the stamp duty is a state subject. Different states have enacted specific stamp duty Acts, which are applicable in particular states. For example, the Uttar Pradesh Government has made “The U.P. Stamp Act, 2008 (U.P. Act No. 17 of 2010)”. The Maharashtra Stamp Act, 1958 is one of the oldest stamp duty Act by one of the states in our country. The Indian Stamp Act, 1899 and the Maharashtra Stamp Act are the laws used related to stamp duty in India with some changes in most of the states. Though it is mainly a state subject, the central government fixes the stamp duty rates in case of some specific instruments. An instrument/document with paid stamp duty is accepted as a legal document and can be acknowledged by the courts as evidence.
Under the Indian Stamp Act, 1899, stamp duty is levied at the time of execution of the deed. It has no link with the time of transfer of property. The objective is to impose a duty on the instrument, but not to control the actual transaction between the parties.
Applicability of stamp duty
The applicability of stamp duty on specific instruments is governed according to Section 3 of the Indian Stamp Act, 1899. Details of the instruments and the payable stamp duty are given in schedule I-A and Schedule I of this Act. Instruments like affidavit, lease, memorandum and articles of the company, bill of exchange, bond, mortgage, conveyance, receipt, debenture, share, insurance policy, partnership deed, proxy, shares etc. are covered under the Schedules. Through the amendment Act, 1922, Schedule I was inserted. As per provisions under Section 3, stamp duty has to be paid on every instrument executed in India after 1st July, 1899. Similarly, every instrument executed outside India involving any property in India and received in India are liable for stamp duty payment as per the details mentioned in the Schedule. The amount mentioned in Schedule I-A is applicable on the instruments under clauses (a) and (c) executed in the state on or after 1st April, 1922.
The Indian Government through statutes passed by the Parliament can make laws related to stamp duty. The stamp duty rates related to bill of exchange, cheques, transfer of shares, receipts etc. are prescribed by the Government of India and have pan India applicability. On other instruments, state governments have powers to decide stamp duty.
The appropriate government has the power to decrease or to remit whole or part of duties payable under the law. Such reduction or remission can be applicable to whole or part of territories or to a specific set of people. The duties in case of the issue of shares or debentures by companies can also be compounded or consolidated by the government.
In general terms, in our country, the stamp duty is generally applicable on the documents like transfer of property, shares, debentures, bill of exchange, conveyance deed, hire purchase, promissory note and movable and immovable properties. The partnership deed, gift deed, lease agreement, rent agreement, increase in authorized capital, agreement of sale, buying a house, bank guarantee, commercial property, home loan, loan agreement, mortgage, and service apartment are also liable for stamp duty payment. The real estate transactions involving buying, selling, renting, and leasing of a residential or commercial property are also required to pay stamp duty before signing, to ensure the legal validity of the documents before the courts.
Types and mode of stamp papers
There are two types of stamp papers depending on use:
- Judicial stamp paper is used in legal and court work,
- Non Judicial stamp papers are used for contracts, agreements, registration of documents, leases/sale-purchase transactions etc.
As per Section 10 of the Indian Stamp Act, payment of stamp duty on an instrument needs to be mentioned in the instrument by using stamps as per provisions of the Act. The payment of stamp duty may be in form of;
(a) Adhesive stamps,
(b) Impressed stamps,
(c) Payment of duty in cash.
As per Section 2(11) of the Indian Stamp Act, ‘duly stamped’ indicates that the instrument bears an adhesive or impressed stamp of the required amount and such stamp has been affixed or used in accordance with the law in force.
Stamp duty charges
As stamp duty is mainly a state subject, the charges vary from state to state, except for the specific instruments for which the central government decides the stamp duty rates. There is also a penalty for delayed payment of stamp duty. This may be 2% on a monthly basis (up to 200% of the remaining amount).
Stamp duty mainly depends on the value of the property. The property value again depends on various factors including the circle rate based on the location of the property, property type, year of construction etc. The circle rate is the least value of the property at which it can be registered. These circle rates are fixed by the respective authority, under the state government. The stamp duty in India, normally, varies between 5-8% of the property value. In addition to the stamp duty, about 1% may also be applicable.
Categories of instruments for stamp duty
Though most of the time, it may be easy to calculate the stamp duty, even by using calculators provided by different portals nowadays, in some cases, it may be difficult and may require help from the collector of stamps. The calculation of stamp duty depends on the category of transaction. There are three categories of transactions related to stamp duty calculation.
Fixed stamp duty instruments
In some instruments like administration bond, affidavit, adoption deed, appointment in the execution of power, divorce, apprenticeship deed, award, article of clerkship, cancellation deed, duplicate, charter party, copy of extracts, indemnity bond, power of attorney, etc., the stamp duty does not change depending upon the value of the transaction in the instrument. The stamp duty remains fixed for such types of documents.
Instrument with variable stamp duty
In the instruments like mortgage deed, lease agreement, title deeds, security bond, hypothecation deed, article of association, etc., the stamp duty varies with the transaction value mentioned in the instrument.
Instrument with a market value linked stamp duty
For some instruments, the stamp duty is determined on the basis of the value of the transaction indicated in the document or the correct market value, whichever is higher. Examples of such instruments are gift exchange, conveyance, development agreement, partnership deed, transfer of immovable property, trust deed, partition, agreement for sale etc.
Calculation of stamp duty
According to Section 27 of the Indian Stamp Act, all the facts and circumstances, which can affect the instrument, including the property market value on the date of execution of the instrument must clearly be mentioned in the instrument. The stamp duty calculation is made as on the date of execution of the document and the value of the property on that date, but it does not depend upon the date on which it is produced before the Court or Collector for consideration.
The stamp duty depends on the type of instrument and where the transaction is made. The stamp duty varies from state to state in India. In UP the stamp duty for some instruments mentioned below.
Category 1 : fixed stamp duty
- Acknowledgement of debt more than Rs. 1000: Stamp duty is Rs.10
- Administration bond: Same as bond subject to a maximum Rs. 200
- Affidavit including an affirmation or declaration: Rs. 10
- Apprenticeship deed, including service or tuition of any apprentice, clerk or servant to learn any profession, trade or employment with a master: Rs. 20
- Company’s article of association: Rs. 500
- Enrolment certificate under Advocates Act, 1961, issued by the Bar Council of UP: Rs. 500
- An instrument for the ending marriage: Rs.100
- Power of Attorney as per Section 2 (xxii) of the UP Stamp Duty Act,2008, without granting power to sell or transfer of immovable property, authorizing family members like grandfather father, grandmother, mother, husband, wife, son, grandson, daughter, real brother, real sister: Rs. 100.
- Power of Attorney as per Section 2 (xxii) of the UP Stamp Duty Act,2008, to a person other than mentioned in point 8 above, without authorisation to sell or transfer of immovable property, for a period not more than 2 years: Rs. 5000
Category 2 : variable stamp duty
- Agreement or memorandum of an agreement, related to the sale of a bill of exchange and related to the purchase or sale of government security: Rs. 1 for every Rs. 10,000 or part thereof.
- The agreement is related to the sale of immovable property. With the provision that if the said agreement is cancelled within three years from the date of execution of the agreement, the stamp duty is refundable with a deduction of 10%, with min. Rs. 100: Rs. 20 for each Rs.1000 mentioned in the instrument.
- Agreement relating to deposit of title deeds, hypothecation or pledge for the title to any property, wherein the title has been made by way of security for the repayment of money taken as loan/debt: Rs. 5 for every Rs. 1000 or part of loan/debt.
- Appointment in execution of a power of trustees or movable/immovable property, except will: Rs. 50 if the value of the property is up to Rs. 1000 otherwise Rs. 100.
- Bank guarantee deed executed by a bank in form of surety against the performance of a contract discharge of liability: Rs. 5 for every Rs. 1000 or part thereof with a ceiling of Max. Rs. 10,000.
- Mortgage deed: Rs. 20 for every Rs.1000, for transaction equal to the amount secured by the deed, when possession of the property is given or agreed to be given by the mortgagor: Rs. 5 for every Rs. 1000 or part thereof for the amount secured by the deed, subject to a maximum of Rs. 5,00,000, in other cases
- Work contract instrument, to ensure the performance of a contract or discharge of a liability: Rs. 5 for every Rs 1000 or part thereof, of the amount equal to the value secured by such deed, subject to a min. of Rs. 100 and a max. of Rs. 10,00,000
Category 3 : market linked
- The agreement related to building, constructed on land by a person other than the owner or lessee of the land with condition that constructed building will be owned jointly or individually by the person constructed building and the owner or lessee of the land: Rs. 20 for every Rs. 1000 or part of the amount mentioned in the agreement or the market value of the concerned immovable property, whichever is greater.
- Conveyance including sale or court order or RBI or transfer of share by co-operative housing societies in immovable property from an existing member to a new person for transferring movable/immovable property, which is not otherwise specifically provided for by the Schedule.
- For immovable property:
- Rs. 50 for a transaction involving immobile property value mentioned in document or market value not exceeding Rs. 500.
- Rs. 80 for value more than Rs.500 up to Rs. 1000.
- Rs. 80 per 1000 if the value exceeds Rs. 1000.
- For immovable property by a registered co-operative housing society: Same as mentioned at a) on 1/2 of the transaction or the market value, whichever is higher.
- For transfer of share in immovable property of a present member of the co-operative housing society to any new person: Same as a) on one-half of the transaction value or the market value, whichever is higher
3. Instrument for property exchange, which includes declaration or records of oral exchange or decree of any court: Same as 2a) mentioned above for a transaction equal to the market value of the property. However, if stamp duty was paid on the decree of the court then at the time of execution of an agreement, the stamp duty has to be adjusted against the total duty applicable on such instrument
4. Power of Attorney as per Section 2 (xxii) of the UP Stamp Duty Act,2008,
given to a person other than those mentioned in point 8 under category 1, clause (a) without consideration to sell or otherwise transfer immovable property, for a period
more than 2 years or for an indefinite period: Same as mentioned at 2 a) for the market value of the property.
5. Power of Attorney as per Section 2 (xxii) of the UP Stamp Duty Act, 2008 to any person with authorisation to sell or transfer an immovable property situated in UP.: Same as mentioned at 2 a) for the market value of the property
Stamp duty on a particular instrument is based on the type of instrument and the physical location where this instrument is executed. For some instruments, the stamp duty is fixed for others either depending on the value of the transaction mentioned in the instrument or the market value of the property. These rates are notified by the concerned authorities beforehand through the government. orders or provisions in the concerned Act. The e-stamping has been adopted in the country in order to facilitate accurate calculation, proper accounting of revenue earned by government and for ease of the whole stamp duty process. E-stamping is a very easy way of paying the stamp duty online. Stock Holding Corporation of India Limited (SHCIL) has been designated as the Central Record Keeping Agency for matters related to e-stamping.
Correct calculation of stamp duty is very important keeping in view the fact that an unstamped or insufficiently stamped instrument cannot be considered as evidence in the court of law, even if both parties are agreed. When a document is produced before the court as evidence, the court has to check for the correctness of the stamp, even in absence of any objection by the opposite party. While calculating the stamp duty all the amendments made in the concerned Act must be considered as there have been many amendments in India Stamp Duty Act,1899.
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