When a property is transferred from one party to another party the most important step is to get the physical possession by registration. At the time of the transfer of property stamp duty, a tax levied on property transactions is paid to the government.
Section 2 defines the term ‘Conveyance” [2(g)], “Instrument” [2(l)] and “Settlement” [2(t)]. It is the settled position in law that in terms of the scheme of the said Act, stamp duty is charged on ‘the instrument’ and not on ‘the transaction’ effected by ‘the instrument’.
The demand and supply chain in the infrastructures is continuous. With the existing and ever-increasing population, people demand more and more. It has moreover become an urban challenge to satisfy the demand of the current population of India. The Government of India implemented a reform, stamp tax reform which is the key to control the demand backlog of immovable property. This discourages the people to spend in real estate which straightforwardly handicaps the growth of property business. However, the imposing of this ’Ad valorem’ tax has benefitted the Indian economy accounting for one of the major revenue for the state.
The history of stamp duty dates back to the 17th century, Holland. The Britishers copied the idea and introduced it in the colonies of India by introducing Regulation VI of 1797 in some areas. This forms the law today and is known as the Indian Stamp Act,1899.
Recently, the president gave assent to the Indian Stamp Act which introduced reformative measures. By the notification dated 30th March 2020, the Indian Stamp Act, 1899 has been amended by the Central Government which shall be in effect from 1st July 2020.
1. The central act has given states the power to enact its own stamp duties. The stamp duty is similar across the states when governed under The Stamp Act but shows distinct character when states enact their own stamp duty. The stamp duty has been predominantly been segregated into two. Firstly, Judicial stamp duties also known as the court fees, covered under Court Fees Act, 1870 is paid to the court in respect of judicial matters and Second, Non-Judicial Stamp duties, covered under Indian Stamp Act,1899 is basically the tax paid to the government for the transactions involving immovable property.
2. The State Legislature would have the jurisdiction to levy stamp duty under Entry 44 List III of the Seventh Schedule of the Constitution and prescribes the rate of stamp duty under Entry 63 List II. It does not in any way impinge upon any entry in List I. Entry 44 of List III empowers the State Legislature to provide for stamp duties other than duties or fees collected by means of judicial stamps. Along with this, Entry 63 of List II empowers the State Legislature to prescribe rates of the stamp duty in respect of documents other than those specified in the provisions of List I, that is to say, rates of the stamp duty in respect of Bill of Exchange, cheques, promissory notes, bill of landing, letter of credit, policies of insurance, transfer of shares, debentures, proxies and receipts.
Determinants to decide the stamp duty charges:
- Age of the property – old or new
- Neighbourhood and location- rural or urban
- Square foot area and no. of flat
- Commercial use, residential purpose or agricultural purpose
- Male buyer or a female buyer ( for females less stamp duty)
Valuation of Stamp Duties:
Under the Act, the stamp duty is calculated on the value of the security according to the average price or the value thereof as on the date of the instrument. With the latest amendment, the stamp duty shall be calculated on the same price which was fixed for the transaction and not the average price of that day.
When to pay stamp duty?
Section 2(d) section makes it clear that any instrument chargeable with duty executed in the State is required to be stamped before or at the time of execution or immediately thereafter or on the next working day following the day of execution. Every instrument shall be signed with impressed stamp appearing at the face of the instrument.
Who pays the Stamp Duty?
In the absence of the agreement to the contrary, the expense of the proper stamp shall be borne by the transferee. In the case of an instrument of exchange it shall be borne equally by the parties.
The onus of paying Stamp duty
In the amended act, Section 29 sets out the responsibility of paying stamp duty in the absence of any prior agreement.
What is the penalty charge?
The stamp papers are valid for 6 months otherwise it extracts penalty. Before the amendment, if any person fails to pay the stamp duty or executes the same without the document being duly stamped then the person shall be punishable for such an offence for Five hundred rupees. The amendment included 62A according to which if any person fails to transfer the duty in compliance to 9A within 15 days to state government shall be punished with a fine of one lakh rupees.
Mode of payment:
1. Physical stamp paper – All you need to do is fill in the transaction details in a non-judicial stamp paper having impressed stamps. However many times the problem faced is its shortage and its costliness
2. Franking – Generally an authorized franking agent executes the transaction who deposits the stamp duty and franks the document with a special adhesive stamp. The franking charges need to pay which can be adjusted in the sale deed. The fees, however, varies from one state to another.
3. E-stamping – Stock Holding Corporation of India Limited (SHCIL), has been appointed the official vendor for e-stamping. It is also the centre for keeping records. This eco-friendly procedure requires you to fill the application form and submit it with stamp duty via any online mode. The government has devised this mode to avoid fraud and duplicity and to provide ease and comfort to the property dealers.
Instruments which have not been duly stamped are not admissible in the court of law and the transaction is considered not to be executed. However, it can become legal evidence once the duty is paid or after paying a nominal penalty of Rs.1.
Although the act is the inheritance given to us by the Britishers with the tremendous change in the economy it is important that we introduce changes in an old and obsolete act. It is important to note the suggestions which the Law Commission of India introduced in its 231st Report in 2009. The use of court fees in round figures, using no-paper stamp duty policy to prevent the burden of huge costs incurred by the government and switch to e-stamping, a more reliable, safe, fraud-protected and hassle-free form of paying tax. A more time-efficient and easily accessible mode should be adopted by the public.
This article is authored by Aarcha Gupta, Fourth-Year, B.A. LL.B (Hons.) student at Symbiosis Law School, Noida.
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