10 Things You Should Know About Stamp Duty On Property Purchase

The paperwork involved in a real estate transaction entails a fair amount of money getting spent. After all, it is these papers that stand as proof of your property ownership. Among the major costs are the one-time registration fee and stamp duty that you have to pay under Section 3 of the Indian Stamp Duty Act, 1899, after a sale deed is processed.

To help you understand how these work, PropGuide looks at 10 aspects of stamp duty charges on property buying that all home buyers must know about.

Stamp duty rate: The rates at which stamp duty is charged in various Indian states at present range from 4 per cent to 10 per cent. Registration fees, on the other hand, stand at a standard one per cent across states. In some states, a flat fee is also charges as property registration charge. These states include Haryana and Maharashtra. 

Payment frequency and penalty: Stamp duty is a one-time charge paid under Section 3 of the Indian Stamp Duty Act, 1899. If you fail to pay this charge, you have to pay the outstanding amount along with a penalty of two per cent of the outstanding amount per month. The penalty could go to as high as 200 per cent of the original liability.

Lower rates for women: To encourage property ownership among women, many states charge lower stamp duty if the property is registered in a woman's name. In the national capital Delhi, for instance, women home buyers have to pay four per cent of the sale deed value as stamp duty, even as the normal stamp duty rate here stands at six per cent.  In Haryana, stamp duty of seven per cent is levied if a property is registered in the name of a man in urban areas. In case the ownership is being transferred to a woman, the applicable stamp duty charge is five percent of the stated property value. 

Stamp duty on purchase of apartments: Apartment buyers have to pay stamp duty charges, based on the individual share of the property. This means if a project is built on 50,000 sq ft of land and units of similar sizes are sold to 10 people, each one of them has to pay a stamp duty charge for 5,000 sq ft.

Documentary evidence: In case of a dispute, the document showing you have paid the stamp duty acts as a legal proof of your ownership over the property. It should be noted that property registration papers are not counted as legal proof; they only prove that you paid a fee. This has also been a reason why many home buyers put the property registration work on the back burner. However, if you want to sell your property in future, it will be difficult for you to do so if the registration has not been done.

State subject: Though regulated by a Central Act – The Indian Stamp Duty Act, 1899 – stamp duty charges are collected by states, and these form a crucial part of their revenue collections. In fact, states have the Constitutional right to make any changes to the Act and have their own sets of rules in this regard. Stamp duty charges vary across states. And, even in a particular state, they might vary from one locality to another. Maharashtra, for instance, has the Bombay Stamp Act, 1958, that regulates stamp duty and property registration in the state. Other states like Gujarat, Karnataka, Kerala, Rajasthan and Tamil Nadu also have their own stamp duty laws.

Rate too high? Home buyers in India sometimes put off property registration because of high stamp duty charges. This severely hits the government's revenue collection and may also be a reason why land and property transaction records are in a poor state. Compared with other economies, stamp duty charges in India are high. According to a World Bank report, the countries like Philippines and Vietnam charge stamp duty in the range of one to two per cent.

In light of the Coronavirus pandemic, which has brought the housing market to a standstill, some states have, in the recent past, lowered these charges to encourage home buyers to register properties. The Maharashtra government has, for example, lowered the stamp duty on property purchase by up to three per cent for a limited period till December 31, 2020. From January 1 to March 31, 2021, buyers can also get their properties registered by paying stamp duty that is two per cent lower than the prevailing rate. After this period, the state may restore the old levy of five per cent. 

Karnataka has also lowered its stamp duty rate to three per cent, to boost buyer sentiment at a time when housing sales have touched record low levels in the state's capital Bengaluru.

Online stamp duty payments: To simplify stamp duty payment and property registration, several states have initiated an online process for payments. So buyers can actually make the payment by visiting the Stock Holding Corporation of India Limited website and purchase stamps of required worth.  Additionally, stamp duty can also be paid by purchasing physical stamp papers or through franking. 

Home loan eligibility for low-income groups: Earlier, banks did not factor in stamp duty and registration charges as a property's cost. Due to this, home buyers had to be ready with their own savings to pay for these. However, the Reserve Bank of India (RBI) in March 2015 directed banks to include stamp duty and registration chares while calculating a borrower's loan eligibility in cases where the cost of the property is up to Rs 10 lakh. The move was aimed at promoting housing among low-income groups and economically weaker sections. Banks now include stamp duty and other document work-related charges in the overall cost of a house while calculating borrowers' loan to value ratio (LTV). LTV is the ratio of the loan amount to the value of the property.

Stamp duty on home loan agreement: You also have to pay stamp duty if you have availed of a home loan for buying a property. You have to deposit the property documents with your bank, along with an undertaking that you are submitting these papers at your free will to avail of the loan. Now, this undertaking, known as the memorandum of deposit of title deed, is registered and 0.1-0.2 per cent of the home loan amount is charged as stamp duty for this.