What are all the agreements that need stamp duty?

Last Updated at: October 22, 2019
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What are all the agreements that need stamp duty

As per the Indian Stamp Act, 1899, stamp duty must be paid as a measure to record and keep track of all the transactions. Therefore, stamp duty works almost like proof for the deal closure and that it has been taken place. It is a legal entity that is valid in a court of law as a piece of evidence in the case of disputes. The most recent amendment for the Indian Stamp Act came in 2016 in the form of the Recovery of Debt Laws Bill 2016. If you are buying a new property or selling an asset, then stamp duty is definitely something you should know about. If you are not aware of all the legalities regarding stamp duty and its application, don’t worry, because we have got you covered.Here’s a look at everything you need to know about stamp duty and wherein you need to pay it.

What is stamp duty?

Physically transferring property is not considered valid in the eyes of the law. To make such a property transaction valid, the buyer must pay stamp duty, as proof of the purchase has occurred. Stamp duty is, therefore, the government tax paid at the time of property transaction and makes the transfer certificate hold good in a court of law. 

This duty is computed as a function of the property’s value and is usually some percentage of the total payable amount. While the rate for stamp duty varies from state to state, the general underlying principle behind the duty remains the same. Stamp duty works as a legal tax which must be paid in full during the completion of a transaction. While the buyer usually pays the stamp duty, there are cases, when the buyer and seller decide to split the stamp duty as per an earlier signed agreement.

When is stamp duty payable?

  • Before executing the transaction document
  • A day before the execution of the document
  • A day after or the next working day after the execution of the document, whichever is earlier

*Execution refers to as and when the buyer and seller sign the document that results in a transfer of asset or property.”

Points to remember regarding stamp duty

  1. Whenever stamp duty is paid on time, it is valid for six months
  2. Whenever stamp duty is paid on foreign documents, it is valid for three months 
  3. Unless stamp duty is paid, the agreement will not be valid in a court of law
  4. As per the Indian Penal Code, not paying the required stamp duty is a criminal offence
  5. Such delays in payment can make the individual liable to pay a hefty fine ranging from 2% to 200% of the total payable amount. 
  6. The stamp duty is to be made by the purchaser or buyer and not the seller 

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Documents that require stamp duty

These are the documents on which the Union or Central Government levies a stamp duty. Apart from this, the respective state governments may also levy tax on certain documents.

  • Exchange Bills
  • Credit Letters
  • Lading Bills
  • Insurance Policies
  • Transfer of Shares
  • Proxies 
  • Receipts
  • Debentures
  • Promissory Notes

As far as the State Duty is concerned, it generally varies from state to state. Nonetheless, there is a general pattern that is followed. For instance, let us take a look at the stamp duty levied by the Karnataka State Government. Other than the documents mentioned above, the Karnataka State Government levies stamp duty on:

  1. Affidavits
  2. Mortgage Certificates
  3. Adoption Letters 
  4. Will Deed
  5. Power of Attorney
  6. Settlement of moveable property
  7. Settlements of immovable property
  8. Bonds 
  9. Securities issued on loans
  10. Rental Agreements
  11. Lease Agreements 
  12. Documents for Surrender of Lease
  13. Limited Liability Partnerships
  14. Articles of Association
  15. Construction of Property
  16. Conveyance

Business contracts that demand stamp duty

  • Limited Liability Partnerships (LLP): As per the LLP Act, 2008, an LLP has to pay stamp duty at the time of incorporation or registration based on the geographical location and contribution of capital.
  • Articles of Association: Both AoAs and Memorandum of Associations, which are needed for incorporating companies have to pay a prerequisite fee as per the Indian Stamp Act, 1899. 
  • Partnership agreements: Any partnership agreement that defines the roles and responsibilities of the partners and contains details regarding the split-up of profits must pay a stamp duty of INR 1000.
  • Partnership firm registrations: While whether to register a partnership firm or not is left up to the partners as per the Partnership Act, 1932., if they do decide to do it, then they must pay prescribed stamp duty.
  • Transfer of shares: Any document that deals with the transfer of shares or assets must be duly signed and stamped by the appropriate authorities to be considered legally binding. Share certificates are also eligible to pay stamp duty.
  • Debentures: Stamp duty is levied when debentures are transferred and not when they are issued. Such duty is considered to be a part of marketable securities.
  • Bills of Exchange/Promissory Notes
  • Letters of credit
  • Bonds
  • Security certificates for loans

Documents which need not be registered but must pay stamp duty

  1. Power of attorney 
  2. Development agreement
  3. Agreement of sale to a developer
  4. Lease agreement
  5. Lease deed for less than one year
  6. Memorandum of oral partition
  7. Recording of a past transaction

*As per Karnataka State Government laws

Computation of stamp duty

  • It is calculated on the present-day market value
  • It is based on value as per the registration document and not based on the transaction value 
  • It is charged on an agreement and not on an individual who is a part of the transaction
  • A stamp duty reckoner decides the valid rates at which duty must be levied. This book is published on the first of January annually.
  • Factors which are considered while computing stamp duty are:
    1. Property’s age 
    2. Owner’s gender
    3. Classification of property
    4. Lease classification
    5. Residential/Commercial permit
    6. Single or multi-storied building
    7. Geographical classification

     

  • Usually, stamp duty is calculated with the rates that are applicable to the respective state. For example, if a property in Tamil Nadu is valued at 12,00,000, the buyer may have to pay a stamp duty of 84,000 as the rate in Tamil Nadu is 7%. It also differs based on other factors as mentioned above and it is important to check the government websites for the latest updates.

Payment of stamp duty

  1. The buyer must pay the duty at the time of executing the deed
  2. The amount must be paid in full and not as instalments
  3. The various available modes of payment are:
  • Physical paper: Buyer must buy a physical stamp paper of the required amount from an authorised merchant.
  • Franking: Franking requires an authorised agent to vouch that the buyer has paid the required duty. A franking machine is then used to frank the document with an adhesive stamp.
  • E-stamping: Stock Holding Corporation of India Limited handles e-stamping operations in India. E-stamping avoids forging of papers and is an easy and straightforward process that is quickly growing momentum in India.

Stamp duty rates across India

Tamil Nadu – 7% 

Karnataka – 5.6% 

Telangana – 6%

Andhra Pradesh – 7.5%

Bihar – 8%

Kerala – 8%

Madhya Pradesh – 8.5%

Punjab – 4-8%

Assam – 4% (Some states like Assam charge separately for men and women. While it is 4% for men, it is 5% for women. Even Delhi and Puducherry levy separate charges on women). 

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