Similar to income tax, Stamp Duty is a tax collected by the government, and is payable under Section 3 of the Indian Stamp Act of 1899. Delay in the payment of stamp duty attracts penalty charges and hence must be paid in full and on time.
Here are a few facts about Stamp Duty that one needs to know before going ahead with any sort of property dealings:
When an instrument or document is paid by stamp duty, it holds evidentiary and legal value, which is accepted by the court of law as legal evidence. In case a dispute crops up, the document showing that you have paid the stamp duty acts as a legal proof of your ownership. Also, a property registration paper is not considered as legal proof, but only provide evidence of payment of fees. Thus, many homebuyers put the property registration work at the back. However, without completing the registration work, selling of the property in the future becomes a problem.
Before, or on the day, or on the next working day of the signing of the document(s) is the correct time to pay. It is a one-time charge paid under Section 3 of the Indian Stamp Duty Act, 1899. However, if failed to pay on time, you will have to clear off the outstanding amount along with a 2% penalty of the outstanding amount per month. Also, the penalty could go as high as 200% of the original liability.
Currently in India, the rate of stamp duty ranges from 4-10%. However, the registration fees stand at a standard 1% across states.
Many states charge lower stamp rate in case of a female property owner, in order to encourage ownership among women. Take for example, in Delhi, the stamp duty charge for women is 4% while for others it stands at 6%.
In case of apartment owners, the stamp duty charges are based on the individual share of the property. As for example, in case a project is built on a property of 60,000 sq ft and units of the same size is sold to 10 people, then, each would have to pay a stamp duty charge for every 6,000 sq ft.
Revenues collected from stamp duties play a crucial role in state coffers. Also, despite being regulated by the Central government, state governments have the constitutional right to make changes to the Act and in addition have their own set of rules in the regard. However, the charges vary across the stated, and also in some states it varies from one locality to another. As for example, Maharashtra has the Bombay Stamp Act of 1958, which regulates the state’s stamp duty and property registrations.
Due to high charges, Indian homebuyers stall property registration, resulting in a poor land and property transaction records. However, in order to simplify the process, many states like Maharashtra have initiated an online process for payment of stamp duties. Also, many states have reduced their rates to encourage homebuyers to register their property.
Earlier banks did not include stamp duty and registration charges as a property’s cost. But in March 2015, RBI passed a mandate to include these charges while calculating a borrower’s loan eligibility in cases where the property cost is of the value of Rs 10 lakh. This move had been introduced to encourage buyers from the lower income and economically weaker groups. Nowadays, banks include stamp duty and other document work-related charges in the overall house cost, while calculating borrower’s loan to value ratio (LTV). LTV is the loan amount ratio to the value of the property.
In order to avail a home loan, stamp duty charges have to be paid. One needs to submit his or her property documents with the bank, with an undertaking (memorandum of deposit) of doing as per your free will. With the registration of the memorandum of deposit, 0.1-0.2% of the home loan amount is charged as stamp duty.