Stamp Duty: A Beginners Guide

Buying a house is a dream. It is also probably one of the biggest financial decision you make. House buying is usually an overwhelming experience, both emotionally and financially. Buying a house includes different steps like identifying the property, making the down payment, applying for a loan, signing the sale agreements and so on. One of the most important step is registering your property.

Just taking the possession of the property is not enough. You need legal papers that have been registered with the authorities to prove your ownership. Before registering the documents and papers, you will also have to pay stamp duty and registration charges. Let’s understand what it is.

If you’ve already taken possession you might want to consider the taxability of income from real estate.

What Is Stamp Duty?

Stamp duty is a government tax levied on all legal property transactions. This tax is, therefore, an evidence of any purchase or sale of a property you indulge in with one or more properties. These stamp papers have to be bought in the name of the buyers or sellers and are valid for 6 months, provided the stamp duty is paid without any delays.

What Is Stamp Duty Act?

Stamp duty is supposed to be paid as per the provisions of Section 3 of the Indian Stamp Act (ISA), 1899. It is aimed to boost revenue for local governments besides lending legality to your home documents.

When To Pay Stamp Duty

You have to pay stamp duty before, on, or the next day of the execution of the document. ‘Execution’ of a document means putting a signature on the instrument by your party to the document.

Delayed Stamp Duty Payment

Delayed stamp duty payments attract penalties. Usually, it is the buyer that pays the stamp duty. However, both, the seller and buyer have to bear the burden of stamp duty for property exchange cases.

According to the provisions of Section 12 of the ISA, if you are executing any legal papers (called instruments) affixed with an adhesive stamp, you have to cancel the stamp by writing on or across it your name or initials. If the stamp is not cancelled in such a manner, it is deemed to be unstamped.

Stamp Duty And Registration Charges

Because stamp duty is a state subject, the rates differ in various states across the country. However, specific instruments have their stamp duties set by the central government. The stamp duty also depends on the age of the property. A delay in the payment of stamp duty attracts a penalty of 2% monthly and goes up to 200% of the remaining amount.

Did you know that if you’ve sold your old property and bought a new one, you can claim tax deductions? However, if you’ve bought this property for investment, you might want to consider calculating capital gains tax on real estate.

If you’re confused about the long-term and short term capital gains tax, you can read about the difference between long term and short-term capital gains.

Documents That Require Stamp Duty

Some of the documents that require stamp duty are:

• Transfer instruments/documents
• Deed of partition
• Reconveyance of any mortgaged property
• Any mortgage deed
• Certificates of sale
• Any gift deeds
• Any exchange deeds
• Tenancy agreements
• Power of attorneys
• License agreements
• Any lease deeds

Stamp Duty Calculation

There are multiple parameters that authorities use to calculate charges, like the type of building or the plot being bought or sold.

For example, in cases of independent houses, the constructed area is considered for calculating stamp duty and registration charges. In case of apartments, a figure is arrived on the basis of the built up area.

There are some factors about stamp duties that you could keep in mind.

• The stamp duty is calculated primarily on the basis of ‘Guidance Value’. It is the minimum value at which the property should be registered. This value is decided by the competent authority under the state government.
• These charges are indirectly proportional to the market value of the property and market performance, among other aspects.
• The location of the property, whether urban or rural, also plays a role in deciding the stamp duty liability.
• Other state and central axes are also applicable on the registration and stamp duty charges.

There are multiple parameters that authorities use to calculate charges, like the type of building or the plot being bought or sold.

Stamp Duty Charges In Various Cities

Stamp duty is a way for the government to earn revenue while validating your documents and property. Along with the whole shebang of buying a home, registering it in your name is also one of the most important things you should not forget.