What is Stamp Duty?
Stamp duty is a tax applied to a single property purchase and various documents such as legal documents like cheques, receipts, marriage licenses and land transactions. Governed by Section 3 of the Indian Stamp Act 1899, stamp duty replaces the earlier method of stamping physical revenue stamps to prove that tax had been paid for the document to be legally valid. Now, the tax is managed electronically and it no longer requires an actual physical stamp. The amount of stamp duty depends heavily on the value of property and varies depending on the state or region where the property is located.
The Indian Stamp Act of 1899 provides a law that governs the tax levied in the form of stamps on documents used for recording transactions. This act applies stamp duties. The Union government collects stamp duties on certain documents such as bills of exchange, cheques, promissory notes, bills of lading, letters of credit, insurance policies, share transfers, debentures, proxies, and receipts that are listed in Entry 91 of the Union List. The States handle stamp duties on other types of documents not mentioned in the Union List. This is based on Entry 63 of the State List. Moreover, both the Union and the States have the authority to make laws about the stamp duties, except for the rates mentioned under Entry 44 of the Concurrent List. Thus, stamp duties on different types of documents are collected by the respective states.
Factors Affecting Stamp Duty
- Location
- Stamp duty rates and regulations can vary between states, provinces, or countries. Local government authorities set these rates, so they can differ significantly depending on where the property is located.
- Type of Property
- Different types of properties can be subject to different rates of stamp duty. Residential properties, commercial properties, and agricultural land might have varying rates.
- Transaction Type
- The type of transaction can impact the stamp duty calculation. Buying a property, transferring ownership, or other types of transactions may have different stamp duty rules.
- Value of Property
- The amount of stamp duty is often a percentage of the property’s purchase price or market value. Generally, the higher the property’s value, the higher the stamp duty.
Payment and Penalties of Stamp Duty
- Stamp duty must be paid in full. If you don’t pay the full amount, you may face fines and penalties.
- Stamp duty needs to be paid before the legal document is finalized, at the time of signing, or within one working day after signing.
- The buyer of the property is responsible for paying the stamp duty. If goods are exchanged, both the buyer and seller may share the responsibility for paying the stamp duty.
- If you don’t pay the stamp duty on time, a penalty of 2% per month may be charged, with a maximum penalty of 200% of the original stamp duty amount.
