This article is written by Niket Khandelwal pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.com.

Introduction

The Indian Stamp Act, 1899 (hereinafter referred to as ‘Act’) is fiscal legislation enacted by the British Government with an object to increase the revenue of the government. Stamp duty is an indirect tax levied on various kinds of instruments and transactions like bills of exchange, conveyance deed, mortgage deed, lease deed, promissory notes, transfer of shares, immovable properties, etc. by the state governments. Under the Indian Constitution, the levy of stamp duty comes under the State subject (Entry 63 of State List-II) and it varies from state to state as it is not constant. A document or instrument properly stamped has an evidentiary value and is admissible in the court of law. Stamp duty is to be paid in any sale or transfer of property. Delay in the payment of stamp duty attracts a penalty which is generally an ad valorem rate and the maximum penalty could range from two times the deficient stamp duty to ten times the deficient stamp duty, but it doesn’t make the document void or invalid. Recently, Maharashtra reduced the stamp duty on registration of property to 2% from 5% till December 2020 because of the Covid-19 pandemic. This article highlights the laws relating to stamp duty as applicable across India and highlights the effect of pandemic and goes on to the extent of describing the changes made by the Finance Act, 2019.

Types of stamp duty

In India, two types of stamp duties are used namely:

• Impressed Stamps 

It is usually done by the process of embossing or engraving. Labels are affixed by the officer concerned and in the banks by the franking machines. 

• Adhesive Stamps 

It is usually stuck to the instruments by any form of adhesive and it is of two types: 

(a) Postal Stamps – Stamps used for transacting with the post office, 

(b) Non-Postal Stamps – They usually have a wider application as they can be in the form of court fee stamps, notarial stamps, revenue stamps, share transfer stamps, etc. 

Importance of stamp duty

As mentioned earlier, the stamp duty varies from state to state and it also depends upon the value of the property. Stamp duty depends upon the appraised market value of the property. Stamp duty and registration charges amount to a substantial source of revenue for the state governments, often the third of the fourth biggest revenue contributors. Stamp duty is payable whether the property is under construction, completed, or on re-sale. It is payable on the value of the property or on the circle rate, whichever is higher. The central government has been fuelling states to reduce the duty and it’s been on a decline since 2003-04. 

By whom is it payable

Section 29 of the Act provides us with the persons liable to pay for the stamp duty. It differs for various instruments and are as follows:

In the absence of an agreement to the contrary

1. Administrative Bonds, Agreement relating to deposit of Title deeds, Pawn or Pledge, Bills of Exchange, Bonds, Bottomry Bond, Debenture, Further Charge, Indemnity-Bond, Mortgage-deed, Promissory-note, Release, etc – By the person drawing, making or executing such instrument.
2. The policy of insurance other than fire-insurance – By the person affecting the insurance.
3. Conveyance by the grantee, lease, or agreement to lease – By the lessee or intended lessee.
4. The counterpart of a lease – By the lessor.
5. Instrument of exchange – By the parties in equal shares.
6. Certificate of sale – By the purchaser of the property to which such certificate relates.
7. Instrument of partition – By the parties thereto in proportion to their respective shares.

How is stamp duty determined

For the applicability of the Stamp Act to a particular document, there are two guiding principles:

1. For deciding the relevant stamp duty, the court is not bound by the apparent nature of an instrument, it shall always look at the substance of the document;
2. The duty does not apply to the transaction but to the instrument.

Stamp Act is a taxing statute that must be interpreted strictly, and amongst two equally possible meanings, the meaning in favour of the subject must be given effect to. The stamp duty should be construed while referring to the terms of the document and the court should not take into account evidence of the instrument itself. The language and the purpose can help determine the nature of the document. For deciding whether a document falls within the description required for a document to be stamped under the Stamp Act, it should be considered in its entirety.

Stamp duty is generally calculated and paid on the idea of the circle rates of the property applicable in the area, whichever is higher as determined by every State Government. It differs on the type of property i.e., commercial or residential, rural or urban areas. Factors affecting the calculation of stamp duty charge are status of the property, area, location, property usage, property type, age of the owner, gender. 

Stamp Act and Registration Act

The Indian Stamp Act, 1899 and the Indian Registration Act, 1908, does not specifically deal with the same subject matter, the two acts may be read together, and the definitions contained in the Indian Registration Act might be accepted in considering the question under the Indian Stamp Act, and vice versa. Both the acts are responsible for the state revenues by prescribing the stamp duty payable on different instruments. Under these two acts, courts, as well as the officers, perform quasi-judicial functions. The presiding officers are protected under the Judicial Officers (Protection) Act, 1850 and read with Judges (Protection) Act, 1985.

Stamp duty in case of a women

To increase property ownership among women, many states charge lower stamp duty, when a house is registered within the name of a woman. Delhi charges 4% from women buyers as stamp duty compared to 6% from men. If the property has joint owners namely husband and wife and the wife have a source of income, then both of them can claim tax deductions individually. Below is a table indicating the difference in charges payable by men and women. The list is not exhaustive. 

Consequences of non-payment of stamp duty

If the stamp duty on an instrument or document is not paid then it can not be registered and thus can not be considered legal and valid. Chapter V (Instruments Not Duly Stamped) of the Act deals with how an event of an inadequately stamped instrument is to be dealt with.

• Unduly stamped instruments will get impounded (Section 33)

All public officers, with certain exceptions, are required to examine every instrument chargeable with the duty which comes before them and to impound any instrument which appears not to be duly stamped. 

• Unduly stamped instruments inadmissible in evidence (Section 35)

If any document is not duly stamped, then it will not be admissible as evidence in the court. But it may be admitted as evidence if the party pays the requisite stamp duty together with a penalty. A penalty of around 10 times the duty has to be paid.

The court, in this case of Omprakash v. Laxminarayan & Ors, held that an authority to receive evidence shall not admit any instrument unless it is duly stamped. Such an instrument will only be accepted if the duty is paid along with the penalty. In case of an insufficiently stamped instrument, a penalty of ten times the deficiency amount will be charged. 

Stamp duty in different states on property registration

Stamp duty differs from state to state and here is the list of some of the states wherein  charges applicable on ‘Property Registration’ as follows:

Amendments to the Stamp Act made by the Finance Act, 2019

The Finance Act, 2019 amends the Indian Stamp Act, 1899 and is set to come into force from 01.04.2020. Pursuant to it, the Indian Stamp Rules 2019 have been enacted and are also set to come into force from 01.04.2020. The highlights are as follows:

1. The amended act amends the existing definitions to align them with other statutes and also introduces new definitions like debenture, securities, market value. 
2. The stamp duty is now payable on the transfer of securities in dematerialised form thus done away with this exemption.
3. On a single transaction, the stamp duty shall not be charged on any instrument other than the principal instrument.
4. Specifies the persons liable to pay stamp duty in different transactions.
5. The amended Act provides for the levy of stamp duty on securities thus streamlining the process. 
6. Lastly, it also provides the mechanism for the collection of stamp duty for different transactions.

Significant case laws pertaining to stamp duty in India

• Hindustan Steel Ltd. v. Dilip Construction Company, in this case, the court held that the Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments. It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The stringent provisions of the act are conceived in the interest of the revenue. Once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of the initial defect in the instrument.
• Javer Chand and Ors. v. Pukhraj Surana in this case, the court held that whenever an objection has been raised during a court case as to the inadmissibility of a document as evidence on the basis of it being not duly stamped, this objection needs to be dealt with first before doing anything else.

Thus, stamping plays an important role in the successful execution of a contract or agreement thereby making it crucial to pay the correct stamp duty on an instrument. Paying appropriate stamp duty helps the state as well as the litigant to minimise the problems faced in the longer run. 

Conclusion

Inadequate stamping of a document or an instrument can lead to grave complications. It is important for a document to get stamped properly to avoid unnecessary delays. It is much debated to reduce the stamp duty charges as it is already required to be paid over and above the cost of the property and any changes in the rate/duty/charges influence the decision. States gain a large share of revenue out of the stamp duty and the focus should be towards reducing the charges for more individuals and companies to come up and get their documents stamped. For professionals and practitioners, it is highly crucial to be aware of the stamp duty payable/applicable in states where the document is executed. 

References

• http://kanoon.nearlaw.com/2017/10/27/types-stamp-duties-documents/

• https://www.mondaq.com/india/tax-authorities/243718/stamp-duty-intricacies-in-india

• https://taxindiaonline.com/RC2/pdfdocs/worldbank.pdf

• https://homefirstindia.com/article/how-stamp-duty-and-registration-charges-are-calculated-on-property/
• https://www.lexology.com/library/detail.aspx?g=a4520194-73d3-4dbc-80e3-fb8ad7327aeb

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