In this blogpost, Shivali Wal, Student of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about, what is stamp duty, why do we need to pay stamp duty, principles regarding stamp duty and  what is the stamp duty for the transaction of loans (mortgage deed) in Karnataka.

What is stamp duty

Stamp Duty is a type of tax that is payable to the government by a person for the transaction of his property. It is payable under Section 3 of the Indian Stamp Act, 1899. As a general rule, the Government has the jurisdiction to collect such taxes, and it is the liability of the purchaser to submit any such dues following the appropriate procedure.The types of property includes leasehold from land (agricultural and non-agricultural), independent houses, flats to commercial units or a freehold.

Evolution of stamp duty

The first to introduce the concept of stamp duty in India were the British in the year of 1899. At the time, a duty was levied on all transactions related to property, which was to be deposited in the treasury of the government. The regulations with  regards to this were provided under the provisions of Indian stamp Act of 1899 and Bombay stamp Act of 1958. The collectible amount was collected by the stamp collectors who were appointed by the government. These collectors would go directly to the specific state under which the individual is taxed. Today, in several states, the provisions of the Indian stamp act of 1899 is still enforceable.

In India, most of the states have their own stamp laws. Hence,the stamp duty levied varies from state to state. Recently, the state of Tamil Nadu has introduced stamp laws concerning the state by distinguishing matters relating to immovable properties and securities.

The bill introduced by Tamil Nadu has brought some tremendous changes to the  Central law. For example, the family was redefined and the terms sister, brother, husband of predeceased daughter and wife of predeceased son was included within the ambit of the family. Thus, father, mother, husband, wife, son, daughter and grandchild are included within the scope of family in the eyes of the central law.

Need to pay stamp duty

Stamp duty is a kind of tax that is comparable with income tax or sales tax that is chargeable by the government. In order to avoid application of a penalty by the authorities, it is needed that one must pay their stamp duty of the full required amount and on time. The penalty for unpaid amount can attract penalty at the rate of two percent that is chargeable every month with the maximum penalty escalating up to 200 percent for the due amount

Principles regarding stamp duty

To register any document a person is required to pay fees, be it a document for  marriage, company, mortgage, property etc. There exists a lack of awareness amongst people when it comes to matters relating to the quantum of money that is required to be paid for such registration.

The amount of fees that is to be paid in this regard is fixed by the state government, which differs from state to state, as each state is empowered to legislate differently. For example, the stamp duty and registration provisions differ between the state of Maharashtra and Karnataka or for  that matter any other state. The basic guidelines as to the threshold and maximum amount of fees that can be charged is laid down in the guidelines given by the Reserve Bank of India (RBI).

Stamp duty in Karnataka

With reference to the provisions of stamp duty in Karnataka, the fees is fixed by the state government i.e. the government of Karnataka (GOK). The government decides the levy of stamp duty and registration fees for documents which are registered in the state of Karnataka. The fees so decided to be charged as stamp duty for the registration of documents can be either a fixed sum of money or it can be a percentage of the value of the transaction. In the state of Karnataka, The Karnataka Stamp Act deals with the provisions that relate to the amount of stamp duty to be levied for the registration of different types of documents. This act extends to the whole of the state of Karnataka i.e. it extends to the entire territorial boundary of the state of Karnataka. According to the act, ‘stamp duty’ is a kind of tax that is levied on the documents that are registered in the state of Karnataka. The act provides a list of 55 articles which are described in the schedule to the act for which stamp duty  is required to be paid at the rates prescribed. In Karnataka, the department of Stamps and Registration is the third highest revenue generating department . This department has a large interaction with the people

Procedural rules regarding payment of stamp duty in Karnataka

Stamp duty is generally paid either before the date of executing a document or at the date of executing a document. The burden of payment of such fees lies on the person executing such a document that is for example in the case of a sale deed the purchaser will pay stamp duty for the execution of such a sale deed as he is the one who desires to purchase the property in question. Similarly in the case of lease document the tenant would pay such fees. Therefore, when it comes to the  payment of fees in relation the loans  the fees will be paid by the person taking such a loan.

In case the stamp duty is not paid, the registration document, will not be received or considered as evidence in the court of law. Hence non- payment of stamp duty can hamper judicial remedies to some extent.

Stamp duty for the transaction of loans (mortgage deed) in Karnataka

The term mortgage is defined under Section 2(n) of the Karnataka Stamp Act, 1957 as under:

including every instrument whereby, for the purpose of securing money advanced, or to be advanced by way of loan, or existing or future debt, or the performance of or engagement, one person transfers or creates, to or in favor of, another, a right over or in respect of specified property;

Article 34 of the Karnataka Stamp Act, 1957, requires the payment of stamp duty towards any loan transaction as it makes a mortgage deed liable to stamp duty.

However, it is stated that an agreement relating to deposit of title-deeds, power or pledge, a bottomry bond, a deed of mortgage of a crop, a respondentia bond and a security bond are not contained within the ambit of a mortgage deed. Article 27 covers the provisions in regards to payment of a deed of further charge.

Article 34 states that:

1. If possession of the property has already been given, in such a case the amount chargeable is at the rate of 5% on the amount plus the surcharge and the registration fees chargeable in such a case is at the rate of 1% of the amount. (34 a)

Therefore,

– stamp duty = 5% on the amount+surcharge.

– registration fees = 1% of the amount.

2. If the possession of the property has not been given, in such a case the amount chargeable is at the rate of 0.5% for every Rs.100 or part thereof and the registration fees chargeable in such a case is at the rate of 0.5% subject to a max. amount of Rs.10,000.

Therefore,

– stamp duty = 0.5% for every Rs.100 or part there of + surcharge.

– registration fees = 0.5% subject to a max. of Rs.10,000.

Hence, it can be concluded that the rate of stamp duty differs on every mortgage deed. it varies in accordance with the possession of the mortgaged property or on any part of the said mortgaged property.

Stamp duty to be paid on instruments

A stamp duty is payable on instruments but not on the transaction. It is also essential to observe the stamp duty and see the intention of the document and the words used in it in order to ascertain the correctness of the stamp duty.

General design has been formatted for the better understanding of the public concerned with the same. The stamp duty and registration fee payable on the simple mortgage deed is as under:

– Stamp duty towards Government is 0.5% on the Loan Amount On the amount secured. (The Karnataka Stamp Act, 1957 Definitions Section 2(1) (n) )

– Surcharge of 2% on the Stamp Duty paid as per Sl. No. 1 (The Abstract of the Karnataka Municipal Corporation Act, 1976 Section 140 or)

– Surcharge of 3% on the Stamp Duty paid as per Sl. No. Surcharge payable if the loan amount exceeds Rs.2000 (The Abstract of the Karnataka Panchayath Raj Act, 1993 Section 205.)

-Registration fee 0.5% subject to maximum of Rs.10,000=00.On the amount secured.

Conclusion

The collection of stamp duty by the government is a form of tax levied upon the purchasers. The provisions regulating the procedure, amount, etc. varies from state to state in India.

There is a continuous scope of amending the provisions guiding the procedure of stamp duty with the changing economy and government observations. The compliance of such provisions is absolutely vital for the purchasers as it protects their subsequent judicial rights. The state provides an easily comprehensive machinery to the public to ensure not only their better understanding of this concept but also to ensure clarity with regards to the procedure concerning stamp duty.