Term Of The Day: Stamp Duty

Stamp duty is the tax paid while registering the transfer of ownership of property. Alternatively, it is a form of tax that is levied on documents.

PropTiger Explains Stamp Duty

Stamp duty is fundamentally a transaction tax. The government levies stamp duty on real estate transactions. Stamp duty is also levied on other transactions that involve exchange of documents like the exchange of shares, debentures and similar instruments. The government calculates stamp duty according to the value of the property during registration.  

The stamp duty levied depends on the Indian state in which you live and on whether your property is old or new. Generally, the buyer pays the stamp duty. But, if property is being exchanged, both parties involved in the transaction must pay stamp duty. The payment of stamp duty gives the transaction legal validity. Female home buyers in India often pay a stamp duty which is 1-2% lower than that of men, though this varies from state to state.

If you do not pay stamp duty on time, you will be expected to pay a penalty. Transactions on which stamp duty is paid will be considered as evidence in the courtroom. But, if stamp duty is not paid, courts will deem the transaction as legally invalid.

Economists tend to agree that transactions taxes like stamp duty distort the market, and must be abolished, or at least reduced as much as possible. Stamp duty is a major reason for circulation of black money in real estate markets in India. Buyers often convince sellers to undervalue the property to evade paying taxes. The rest of the payment is made in black money. This is true of capital gains tax too.

Analysts have long been pointing out that stamp duty is one of the barriers in the formation of Real Estate Investment Trusts (REITs) in India because it raises the acquisition costs for such trusts.

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