The government levies a compulsory tax on the transfer of rights in a property, known as ‘stamp duty. We examine how it is calculated and ways to save money on this tax amount.
Under the tax laws in the country, stamp duty is an additional cost that all home buyers in India have to bear, in order to become the legal owners of properties. Since stamp duty rates are often high in Indian states, buyers and sellers tend to indulge in the evasion of stamp duty payments.
According to a study conducted by IIM-Bangalore on behalf of the National Housing Bank (NHB), states should lower the stamp duty and registration charges for the purchase of affordable homes. The move would not impact the income of the state revenue departments, considering such homes are backed by the central government’s Housing for All (HFA) program, enjoying significant subsidies under the Pradhan Mantri Awas Yojana (PMAY).
“Several lakhs of additional houses are expected to be built under the HFA, with direct or indirect central subsidies. These houses will generate huge ‘incremental’ tax revenues for the states that are over and beyond the normal growth in stamp duty and registration charge revenues as determined by economic activity. States can share a part of these additional tax revenues with low-value home buyers, by lowering or eliminating their stamp duties and registration charges. Lower prices may induce more people to seek such affordable houses. Along with increases in housing stock, lower prices are a must if the HFA has to succeed,” said the study, titled, ‘A Revenue Neutral Approach to Lower Stamp Duty and Registration Charges for Affordable Housing’.
In October 2020, housing and urban affairs secretary Durga Shanker Mishra also urged states to lower the stamp duty charges, to boost demand in India’s real estate sector, the largest employment-generating industry in India after agriculture. Addressing a webinar organized by industry body CREDAI in association with business management consultant Nangia Andersen India, the housing secretary said the move would significantly lower the cost of property purchase for buyers, consequently reviving growth in real estate.
After the Coronavirus pandemic severely hit the housing market in India, industry bodies have continuously urged states that have large housing markets, to lower the stamp duty rate while appreciating the efforts of the states (Karnataka, Maharashtra, Madhya Pradesh) that have already made announcements on this front.
With a consistent increase over the years, property values across India’s key residential markets have increased exponentially, making purchases quite unaffordable for the common man. However, property prices are not the only thing that home buyers have to worry about. The various other expenses that are associated with transactions, including taxes and cess, substantially push the cost of house purchase further up. Since stamp duty and registration charges figure right at the top of that list, one should be entirely aware of these two duties. We discuss what is the registration fee and stamp duty and the definition, process, and nitty-gritty involved in stamp duty and registration charges on property purchases in India.
What is stamp duty?
The government levies a tax when there is a transaction of property (i.e., when a property changes hands, from the seller to the buyer). This tax is known as ‘stamp duty. It is levied on residential and commercial property transactions, as well as freehold or leasehold properties. Stamp duty is levied by states and, therefore, the rate varies from state to state. The levy is thus named because the stamp mark on the documents is the testimony that the paper has assumed approval of the authorities and now bears legal validity.
Stamp duty on registration of various instruments is imposed under the provisions of the Indian Stamp Act, 1899.
It must be recalled here that unlike most developed, developing and even under-developed countries in the world, stamp duty charges are comparatively high in India. In most countries, stamp duties rates currently are below the 5% range while charges are higher than this in almost all major Indian states.
Judicial and non-judicial stamp duty
Stamp duties are categorised under judicial and non-judicial duties. While judicial stamp duties, better known as the court fee, are charges imposed on litigants in courts, the stamp duty on property transactions falls in the category of non-judicial charges, considering that it is a one-time payment on the value of the transaction. For the majority of states, the bulk of stamp duty revenues come from the tax on conveyance or sale deeds.
What is the registration charge?
While stamp duty is a fee that states charge based on the transaction value, the registration charge is the cost users pay for the service of putting a contract or a deed in the government’s records. In simple words, the government maintains a registry of documents in return for a fee. To a great extent, this process lends inviolability to papers that would otherwise not be legally binding in nature.
The Indian Registration Act, 1908, talks about the manner in which the registration of documents has to take place.
Who imposes stamp duty?
Under the Constitution, stamp duties and registration charges are divided into those imposed under the Union List and those imposed under the State List. Under the Stamp Act, states have the power to determine stamp duties in a manner that rates are reflective of the specific policies of that state. In Indian states, stamp duty charges vary between 3% and 10% of the property value across states.
Registration charges are typically decided by the centre and are, by and large, fixed cross states. Some states like Haryana also charge a standard fee as the registration amount. Stamp duty and registration charges are typically the third or fourth most important source of tax revenues for states and contribute significantly towards their annual GDPs.
The state-wise difference in property registration charges
Also worth mentioning here is the fact that states levy varying fees on registration of the same instruments in India. This is why stamp duty on property registration in India differs from one state to another. Homebuyers in Delhi pay 6% stamp duty on property registration while it is 3% in Mumbai at present. In Jharkhand, the property registration charge is 3% of the property value. In states like Assam, the stamp duty percentage rate that home buyers have to pay is in double-digit numbers. In several southern states, too, stamp duty on property registration is quite high. In Tamil Nadu, for example, buyers have to pay 11% stamp duty and registration charge for property registration.
Who has to pay stamp duty and registration charges?
Across transactions, the buyer is responsible for paying the stamp duty, as well as the registration charge, even though nowhere does the law specify that the buyer must bear the cost.
Stamp duty calculation
The value of the transaction is the single biggest factor, based on which the stamp duty will be levied on a property transaction. At this juncture it becomes crucial to note that district administrations are responsible for fixing a standard rate for land and other property, below which a transaction cannot be registered. Even if a property is being purchased at a value lower than the prevalent circle rates, the stamp duty charges will be applied on the circle rate value of the property. In cases where the transaction is valued higher than the circle rate value, the fee will be charged according to the deal value and not at the circle rate value. For example, if the agreement value of a property is Rs 50 lakhs and the value according to the ready reckoner rate is Rs 40 lakhs, then, the stamp duty would be calculated on the higher value, i.e., Rs 50 lakhs.
Apart from the property values, various other factors also determine the stamp duty a buyer will have to pay during the registration of the sale documents. These include:
Factors considered for stamp duty calculation
The stamp duty percentage depends on several factors, such as:
Location of the property: City area, rural area, metropolitan area, suburban, etc. Stamp duty is different for properties falling within the municipal limits of a city when compared to the properties falling outside the limits. In the case of the former, charges are always higher.
- Age of the owner: Discounts may be available for senior citizens, in some states.
- Gender of the owner: Some states also offer concessions for female real estate owners.
- Usage of property: Whether it is for commercial use or residential use. The stamp duty in the case of commercial properties will always be higher than the stamp duty on residential buildings.
- Type of property: Flat or an independent house, etc.
- Project amenities: States like Uttar Pradesh charge additional stamp duty if the housing project in which the unit is located is offering high-end amenities such as elevators, swimming pools, clubhouses, gyms, community halls, and sports areas.
Stamp duty for women
In order to promote property ownership among women, several states charge lower stamp duty, in case a house is being registered in the name of a woman. In the national capital, for example, women buyers pay only 4% as stamp duty in Delhi on property purchase, while the rate is 6% for men. Lower rates are also offered, in case the house is registered jointly, with the women as the primary co-owner.
However, not all states offer this rebate to women. In Kerala, Bihar and Jharkhand, for example, men and women both have to pay similar charges. In UP also, women enjoy 1% discount on stamp duty on the condition that the worth of the property must not exceed Rs 10 lakhs.
Stamp duty in key Indian states
|State||Stamp duty on property registration (as a percentage of transaction value)|
|Stamp duty in Assam||8.25%|
|Stamp duty in Andhra Pradesh||5%|
|Stamp duty in Bihar||6%|
|Stamp duty in Chandigarh||6%|
|Stamp duty in Telangana||4%|
|Stamp duty in Gujarat||4.9%|
|Stamp duty in Jharkhand||4%|
|Stamp duty in Haryana||7%|
|Stamp duty in Karnataka||3%*|
|Stamp duty in Punjab||7%|
|Stamp duty in Maharashtra||3% (till March 31, 2021), 5% from thereafter|
|Stamp duty in Uttar Pradesh||7%|
|Stamp duty in Odisha||5%|
|Stamp duty in Madhya Pradesh||9.5%|
|Stamp duty in Himachal Pradesh||6%|
|Stamp duty in Kerala||8%|
|Stamp duty in Tamil Nadu||7%|
|Stamp duty in Uttarakhand||5%|
|Stamp duty in Rajasthan||6%|
|Stamp duty in West Bengal||3-4%*|
Note: Charges mentioned are applicable on purchases in urban areas and for male buyers.
*Karnataka cuts stamp duty on affordable property
July 22, 2021: In a move to boost sales of mid-range homes in the state, the Karnataka government on July 22, 2021, lowered the stamp duty on properties worth up to Rs 45 lakh by two percentage points. With this, the stamp duty rate on such properties would be 3% as against the previous 5%. Stamp duty on properties worth up to Rs 20 lakh is 2% in Karnataka.
West Bengal cuts stamp duty by 2%
July 7, 2021: With an aim to provide an impetus to the real estate sector in the state, the West Bengal government announced a 2% reduction in stamp duty on property registration. This means that buyers registering their properties in the urban areas of the state will now pay 4% stamp duty, as against 6% earlier. Similarly, buyers purchasing a property in rural areas have to pay 3% stamp duty now, as against 5% earlier. In case the worth of the property is over Rs 1 crore, the buyer will have to pay an additional 1% stamp duty.
The Maharashtra government has also lowered the stamp duty by one percentage point for women home buyers. An announcement in this regard was made on March 8, 2021, when the state finance minister presented the Maharashtra Budget for 2021-22. Effectively, women homebuyers can currently purchase a property in the state’s capital Mumbai, by paying 4% stamp duty.
With a view to supporting house purchases in the affordable category, the Rajasthan government, in its Budget 2021-22, also lowered the stamp duty on properties worth up to Rs 50 lakhs. If such a property is registered in the name of a man, he has to pay 4.50% stamp duty. Women, on the other hand, would have to pay a 3.50% stamp duty on the purchase of affordable properties in Rajasthan.
Stamp duty and registration charge calculation example
Suppose Ram Kumar buys a property in Delhi for Rs 50 lakhs. Since the applicable stamp duty is 6% in the city, Kumar will have to pay 6% of the Rs 50 lakhs as stamp duty, amounting to Rs 3 lakhs. An additional Rs 50,000 has to be paid towards registration charges of this property in Delhi.
Supposing Kumar decided to register this property in his wife Gita Rani’s name. Then, they will have to pay Rs 2 lakhs as stamp duty since the applicable duty on women buyers in Delhi is 4%. At 1% of the deal value, the registration charges will remain the same for Gita Rani. So the total outgo, in this case, will be Rs 2.50 lakhs.
Supposing the couple decided to register the property jointly, the applicable stamp duty will be 5% plus the 1% registration charge. In this scenario, the total outgo towards these duties for the couple will be 3 lakhs (Rs 2.50 lakhs as stamp duty + Rs 50,000 as registration charge).
Documentation required for payment of stamp duty
Depending on the type of property, the buyer will have to submit a variety of documents at the time of property registration, for payment of stamp duty. The buyer will be required to produce some or all of the below-mentioned documents at the time of registration:
- Sale agreement
- Sale deed
- Khata certificate
- Photocopy of society share certificate and society registration certificate (in case of housing project)
- NOC from the apartment association (in case of housing project)
- Sanctioned building plan (under-construction property)
- Builder-buyer agreement (under-construction property)
- Possession letter from the builder (under-construction property)
- Title documents of the landowner (in case of land purchase)
- Records of Rights and Tenancy Corps or 7/12 extract (in case of land purchase)
- Conversion order (in case of land purchase)
- Tax paid receipts of the last 3 months
- Registered development agreement (in case of joint development property)
- Power of attorney/s (if applicable)
- Joint development agreement between landowner and builder (in case of joint development property)
- Copies of all registered agreements (in case of resale property)
- Latest bank statements in case of any outstanding loan amount
- Encumbrance certificate
How is stamp duty paid?
There are three ways to pay the stamp duty – through non-judicial stamp paper, by franking method or by using the e-stamping method.
Non-judicial stamp paper method (or offline method)
Under this method, the agreement details are mentioned in such paper and it is signed by the executants. Thereafter, within four months, it is required to be registered at the sub-registrar’s office. In this mode of stamp duty payment, the seller has to purchase stamp paper of the required value from a licensed stamp vendor for his sale instrument, if the value of stamps does not exceed Rs 50,000. Since property transactions almost always involve more money than that, required stamp paper has to be purchased from the treasury or sub-treasury of the state government.
In this method, the agreement is printed on plain paper. This paper is submitted to an authorised bank, which processes the documents through a franking machine. The authorised banks stamp the property purchase document or affix a denomination on it. This acts as proof that the stamp duty for the transaction has been paid.
In some of the states, you can also pay the requisite stamp duty amount online, through RTGS/NEFT. Thereafter, the stamp duty certificate, with details such as the date, stamp duty type, etc., can be downloaded for the registration process. The centre has appointed the Stock Holding Corporation of India Limited (SHCIL) as the agency for e-stamps across the country. Buyers can visit the SHCIL portal, to pay stamp duty on their property purchase.
Note here that not all states have all three stamp duty payment options available.
Why stamp duty evasion is so common in India?
Aside from the fact that rates are comparatively much higher in India, stamp duty evasion is prevalent in India, because stamp duty payment does not act as watertight legal proof. Property registration papers only indicate that you have paid a certain fee for certain purposes. For the owner to legally prove his ownership over the property, he might have to present several other pieces of evidence of the same, in case of a legal dispute. This fact discourages many a buyer from registering their properties.
Considering that stamp duty rates are quite high while the entire process lacks the legal sanctity it should have, cases of stamp duty evasion are common in India, resulting in huge losses to the state governments.
Capital gains and stamp duty
Even though the owner can sell his property for a value lower than the circle rate value of a property, he has to pay capital gains tax based on the stamp duty value of a property.
With an aim to tame the use of unaccounted money in real estate, the government in 2017 introduced Section 50C in the income tax law. This section provides that the stamp duty valuation of a property will be the basis of capital gains calculation under Section 48 if the ‘apparent sale consideration received by the seller is lower than the stamp duty valuation.
Section 50C was amended by the Finance Act, 2018, and subsequently by the Finance Act, 2020. The previous amendment stated that no adjustment for capital gains calculations would be made in cases where the variation between the stamp duty value and the sale value was not more than 5%. This limit was further extended to 10% by the later amendment.
What if you evade stamp duty?
In some cases, for saving stamp duty, people show an undervalued property price, in the agreement. The government suffers revenue loss, due to such tax evasion.
If you pay inadequate stamp duty, then, you can be penalised heavily for the evasion. The punishment and penalty for stamp duty evasion may vary from state to state. The penalty can range from eight per cent to 20 per cent of the actual stamp duty, with minimum penalty limits and imprisonment for certain periods, as per the state’s rules.
How to save on stamp duty charges?
Registration in a woman’s name: Some states provide significant discounts on stamp duty, for female realty buyers. So, if you are looking to save on stamp duty, you can purchase the property in the name of any female family member. If you have shortlisted several locations for your property purchase, you can compare the stamp duty charges in the various locations, to decide which location offers the lowest stamp duty value.
Projects with lower amenities: In housing projects that do not have premium amenities, stamp duty charges are lower. In UP, for example, higher duty is charged if the housing society offers various amenities. Unless one really needs these facilities, it would be better to invest in projects with lesser facilities.
Rural areas: In states like Haryana, buyers of property in urban areas have to pay a higher duty, when compared to buyers of property in rural areas. If the property is being purchased primarily for residential use, buying a property in areas that do not fall within the ambit of the municipal area, could help the buyer to save on stamp duty costs.
The real estate fraternity has also been demanding that affordable housing be exempt from stamp duty charges. If this happens, buyers in this segment can save a substantial amount. Sometimes, developers agree to bear the cost of stamp duty and registration charges. However, you need to be careful that you do not get charged for it in indirect ways.
Invest in projects offering stamp duty waivers: With an aim to boost sales, especially at a time when cash-starved developers are forced to devise new methods to attract buyers, a large number of players have offered to waive the stamp duty. This means the builder will bear the stamp duty burden on your behalf. While it may be a good idea to go for such an offer, be mindful of the fact that you also need to diligently examine the other aspects of the purchase.
Tax benefits on stamp duty, registration charges
Under Section 80C of the income tax law, a home buyer can claim rebate on his home loan principal payment along with the money paid towards stamp duty and registration charges. However, the limit stands at Rs 1.50 lakhs in a year only. Under Section 80C, rebates are offered for a variety of investments, including PF, PPF, life insurance, home loan principal, etc. To avail of the benefit though, the buyer will have to prove that he arranged the stamp duty and registration amount from his own pocket. The rebate will not be available if the money is borrowed from some other source. Also, remember stamp duty is not refundable.
Does a home loan cover stamp duty and registration charges?
Home buyers have to arrange stamp duty and registration charges from their own funds, as banks do not include these expenses while evaluating the property’s cost. So, banks only grant 80% of the property value as a loan. Further, banks apply their own methods to evaluate the property. This means if a property is being sold for Rs 1 crore, the bank may not lend Rs 80 lakhs or 80% of the money, if, in its assessment, it finds that the property is valued at only Rs 90 lakhs. In that case, it will issue 80% of the Rs 90 lakhs, i.e., Rs 72 lakhs, as the home loan. In this case, the buyer will be left to arrange the remaining amount, along with the stamp duty and registration charges. This means even though the buyer in Delhi will have to spend nearly Rs 1.06 crores as the overall price to buy and register a home valued at Rs 1 crore, the bank will only grant him Rs 72 lakhs as a loan.