Stamp duty for Property Transaction in India
Stamp Duty is a tax paid to the State Government in India on instruments like gifts, power of attorney, certificates of sale etc. To ensure uniformity in the rates, Entry 91, List 1, Schedule VII of the Indian Constitution keeps the power with the Central Government, which creates rules and policies that are applicable to all states in India. Even though the State government can decide the rates for all other instruments, most of them follow the Indian Stamp Act of 1899 (with suitable amendments) and few have placed their own legislations in place.
This tax is payable either before, on or the next business day after the execution. Execution is considered to have happen when the party’s place their signatures on the instrument. An instrument is considered legal by the court of law only if proper stamp duty is paid on it.
When an instrument is not accompanied with an agreement, it becomes the obligation of the purchaser to pay the stamp duty. It is borne by the lessee in case of a lease agreement and by all parties in equal share in case of an instrument of exchange. The stamp duty must be purchased in the name of either of the instrument’s executor. The government is quite strict when it comes to disclosure of facts. If it is proved that facts were hidden in the instrument with the intention to defraud the government, all people involved (the buyer, the purchaser and the preparer of the instrument) can be prosecuted under the Stamp Act.
The stamp duty is always calculated either on the basis of the open market value or the stated value of the instrument in the agreement, depending upon which is more.
Market value is also calculated on based on:
- The intended purpose of the land
- Plot size
- Estimation (market value increases if land prices are expected to rise)
- Value of neighboring plots
- Bookings made by local authorities.
A person can appeal to the Collector’s office (under Section 47-A, Indian Stamp Act, 1899) if he finds the market value calculated by the Registering Officer is way above his estimate. The Collector then determines the market value and duty payable after the concerned party has deposited 50% of the duty as per the value estimated by the Registering Officer. This amount is either refunded or adjusted towards the final settlement.