Stamp Duties

Real Estate Law

Elhita T. C. M. Thampuran

Enrolment No. - A11911114018

Section E, Semester 7

B. A., LL. B. (H)

2014- 19
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Acknowledgement

I would like to express my special thanks of gratitude to my teacher Mr. Ajay Raj Singh who
gave me the golden opportunity to do this wonderful project on the topic Stamp Duties which
also helped me in doing a lot of Research and I came to know about so many new things I am
really thankful to them.

Secondly I would also like to thank my parents and friends who helped me a lot in finalizing
this project within the limited time frame.

-Elhita T.C.M. Thampuran

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Table of Contents

S. No. Topic Pg. No.

1. Introduction 4
2. What is Stamp Duty? 5
3. Instrument- How written and stamped? 5
4. What Documents Need to be Duly Stamped? 6
5. Benefits of Payment of Stamp Duty 7
6. Consequences of Non- Payment of Stamp Duty 7
7. Cancellation of Stamps 8
8. Effect on Deficient Stamping 9
9. Penalties 9
10. Conclusion- Importance of Stamp Duty 12
11. Bibliography 14

Introduction

Possession is the physical transfer of the property is not sufficient. You also need to have
legal ownership. At the time of registration, you will also have to pay a stamp duty which is a
government tax levied on property transactions.

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Buying a house is one of the biggest financial decisions that you will make in your life. It is
an overwhelming experience, both financially and emotionally. While buying a house, we
need to identify the property, make down payment, apply for loan, sign the sale agreement,
etc. One of the important step & the final step while buying a house is the possession and
registration of your property. After the possession of the property is being transferred to you,
it is your responsibility to get it registered in your name.

Possession is the physical transfer of the property, but it is not sufficient. You also need to
have legal evidence of ownership. For this you will have to get the property registered in your
name in the local municipal records, with the seller documenting that the property is being
transferred to you. At the time of registration, you will also have to pay a stamp duty which is
a government tax levied on property transactions. In this article let’s try to understand what is
stamp duty, why is it essential to pay stamp duty and many more aspects of stamp duty.

Stamp duty is collected on the basis of property value at the time of registration. Stamp duty’s
amount varies from state to state and also property type—old or new. Since it adds up to the
property cost, it’s better to have a fair idea before you finalise your property deal.

Stamp duty is a legal tax payable in full and acts as an evidence for any sale or purchase of a
property. The levy of stamp duty is a state subject and thus the rates of stamp duty vary from
state to state. The Centre levies stamp duty on specified instruments and also fixes the rates
for these instruments.

It is usually paid by the buyer with regardless to agreement and in case of property exchange,
both seller and the buyer has to share the stamp duty equally.

What is Stamp Duty?

It is a tax, similar to income tax, collected by the government. Stamp duty is payable under
Section 3 of the Indian Stamp Act, 1899 1. Stamp Duty must be paid in full and on time. If

1 Indian Stamp Act, 1899.

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there is a delay in payment of stamp duty, it attracts penalty. A stamp duty paid instrument or
document is considered a proper and legal instrument / document and has evidentiary value
and is admitted as evidence in courts. Document not properly stamped, is not admitted as
evidence by the court.

It is a compulsory obligation payable on the document which encapsulates the transfer of

immovable property, such as real estate. Home buyers are required to pay this when
registering the agreement for sale.

It is payable before execution of the document or on the day of execution of document or on

the next working day of executing such a document. Execution of the document means
putting signature on the instrument by the person’s party to the document.

Instrument- How signed and written?

Instrument means any document by which any right or liability is, or purports to be, created,
transferred, limited, extended, extinguished or recorded. It is payable on instruments and not
on transactions. Stamp duty should be charged on the basis of the contents of the instrument
only. If any information essential for working out stamp duty is missing in the instrument,
valuation officer can call for it. Information such as the area of the flat, number of the floors
and year of construction must be mentioned in the agreement for quicker response.

According to the provisions of Section 122, any person executing an instrument—affixed with
adhesive stamp—shall cancel the adhesive stamp by writing on or across the stamp his name
or initials. If such an adhesive stamp has not been cancelled in the aforesaid manner, such a
stamp is deemed to be unstamped.

As per the provision of Section 133, any instrument on an impressed stamp, shall be written in
such manner that the stamp may appear on the face of the instrument and cannot be used for
or applied to any other instrument i.e., cancel the adhesive stamp so affixed by writing on or
across the stamp his name or initials. If such an adhesive stamp has not been cancelled in the
aforesaid manner, such a stamp is deemed to be unstamped.

Therefore an instrument bears an adhesive stamp of proper amount as per fixed by law’ so
‘Instrument not duly stamped’ means ‘instrument bear a stamp which of the lower amount as
per fix by law’
2 Indian Stamp Act, 1899.
3 Indian Stamp Act, 1899.

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What documents require to be duly stamped?

Stamp duty needs to be paid for every document prepared and through which any right, title,
interest or liability is created or transferred. The amount of stamp duty is dependent on the
appraised market value of the property.

As per Section 34, Subject to the provisions of this Act and the exemptions contained in
Schedule I, the following instruments shall be chargeable with duty of the amount indicated
in that Schedule as the proper duty therefore, respectively, that is to say-

(a) every instrument mentioned in that Schedule which, not having been previously
executed by any person, is executed in 3[India] on or after the first day of July, 1899;

(b) every bill of exchange [payable otherwise than on demand] or promissory note
drawn or made out of [India] on or after that day and accepted or paid, or presented
for acceptance or payment, or endorsed, transferred or otherwise negotiated, in
[India]; and

(c) every instrument (other than a bill of exchange or promissory note) mentioned in
that Schedule, which, not having been previously executed by any person, is executed
out of 3[India] on or after that day relates to any property situate, or to any matter or
thing done or to be done, in India and is received in [India]:

PROVIDED that no duty shall be chargeable in respect of-

(1) any instrument executed by, or on behalf of, or in favor of, the government in
cases where, but for this exemption, the government would be liable to pay the duty
chargeable in respect of such instrument;

(2) any instrument for the sale, transfer or other disposition, either absolutely or by
way of mortgage or otherwise, of any ship or vessel, or any part, interest, share or
property of or in any ship or vessel registered under the Merchant Shipping Act, 1894,
or under Act 19 of 1938, or the Indian Registration of Ships Act, 1841, as amended by
subsequent Acts.

Therefore, except transfer by Will (or by original nomination in a co-operative housing

society) all transfer instruments / documents including agreements to sell, conveyance deed,

4 Indian Stamp Act, 1899.

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gift deed, mortgage deed, exchange deed, deed of partition, power of attorneys, leave and
license agreement, agreement of tenancy and lease deeds have to be properly stamped before
registration.

If there is any doubt regarding the amount of stamp duty to be paid against a document, then
the parties may file the matter for adjudication before the The process that determines the
value of stamp duty to be paid, based on property value evaluation by the Stamp Duty
authorities is termed as “Adjudication”.

The Benefits of Payment of Stamp Duty

1. Documents properly stamped and registered can be tendered as evidence in Courts

and are admissible.
2. When the document is properly stamped, the parties can enforce the terms and
conditions mentioned in the document by seeking specific relief before Court.
3. Stamp duty paid for registration for a document relating to transfer of property for
housing purpose can be claimed for deduction under Section 80C of the Income Tax
Act.

The Consequences of Non-Payment of Stamp Duty

One of the consequences of non-payment of stamp duty is that non-payment of stamp duty
would mean non-registration and thus, the document cannot be used for the purpose of
proving the contents of such documents due to the reason of it being not stamped or
registered.

As per the provision of Section 59 of the Stamp Act 1891, any person who, with the intention
to evade the Stamp duty, executes or signs any instruments chargeable with stamp duty,
without the same being duly stamped, shall on conviction, be punished with rigorous
imprisonment for ¸ term which shall not be less than one month but which may be extended
up to six months and fine up to Rs. Five Thousand.

Sections 67 and 68 empower the authorities to enter upon any premises and to inspect and
impound/seize the documents which are not duly stamped and burden is casted upon every
public officer to assist the authorities in detection of evasion.

i. Finance (No. 2) Act, 2004 inserted the definition of “stamp” as any mark, seal or
endorsement by any agency or person duly authorized by the State Government, and

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includes an adhesive or impressed stamp, for the purposes of duty chargeable under
the Stamp Act.
ii. Section 2(11) of the Indian Stamp Act, 1891
iii. Executing the document means putting signatures upon the documents by the persons
purporting to execute the documents in addition to signature by two witnesses.
iv. Section 2(14) of the Indian Stamp Act, 1891.

Cancellation of Stamps

As per Section 12 of the Indian Stamp Act, Clause (1) (a) “Whoever affixes any adhesive
stamp to any instrument chargeable with duty which has been executed by any person shall,
when affixing such stamp, cancel the same so that it cannot be used again; and

(b) Whoever executes any instrument on any paper bearing an adhesive stamp shall, at the
time of execution, unless such stamp has been already cancelled in manner aforesaid, cancel
the same so that it cannot be used again.

(2) Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot
be used again, shall, so far as such stamp is concerned, be deemed to be unstamped.

(3) The person required by sub-section (1) to cancel an adhesive stamp may cancel it by
writing on or across the stamp his name or initials or the name or initials of his firm with the
true date of his so writing, or in any other effectual manner.”

Effect of Deficient Stamping

The Indian Stamp Act is very wide topic to study and it is important for general public also
because this law is applicable to each and every transaction made of any property whether it
is exchange or sell or buy, etc on it stamp duty is to be paid to the government. If this duty is
not paid then penalty is imposed.

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This penalty can be maximum Rs.500 in general condition and if this penalty is not paid then
person can be punished under this act by the collector. The word ‘penalty’ means ‘fine and
forfeiture’ both, before the penalty imposed notice is given to pay insufficient duty and if then
also not paid then only further action is taken.

The collector has got the maximum power in context of revenue at the district level. He has
got power to punish, impose fine and forfeiture of the property. If punished in general way
then no appeal is allowed.

Penalties

Penalties mean fines or forfeitures. From the above definition ‘instrument’ means ‘any right
or liability is transferred’ and ‘duly stamped’ means ‘instrument bears an adhesive stamp of
proper amount as per fixed by law’ so ‘Instrument not duly stamped’ means ‘instrument bear
a stamp which of the lower amount as per fix by law’

When proper stamp duty is not paid on the instrument at that time certain penalty is imposed
by the collector. This penalty may be of the payment of the insufficient stamp duty and fine
of Rs. 500 or he may take the fine up to 10 time of the insufficient stamp duty.

The collector has got the maximum power in context of revenue at the district level. He has
got power to punish, impose fine and forfeiture of the property.

Section 62- Penalty for Executing Not Duly Stamping Instrument5

Whenever word penalty comes in mind of the person with regard to the stamp duty section 62
comes first. This section is dealing with the penalty on stamp duty which is paid less. Many
times it happens that there is a mistake in calculating the stamp duty due to which less stamp
duty is paid to the government. When less duty is paid at that time the process of registration
of instrument is stopped or if done then notice is issued to pay the duty, in this case they have
to pay certain fine which is decided by the collector.

(1) Any person-

(a) drawing, making, issuing, endorsing or transferring, or signing otherwise

than as a witness, or presenting for acceptance or payment, or accepting,
paying or receiving payment of or in any manner negotiating, any bill of

5 Indian Stamp Act, 1899.

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exchange [payable otherwise than on demand] or promissory note without the

same being duly stamped; or

(b) executing or signing otherwise than as a witness any other instrument

chargeable with duty without the same being duly stamped; or

(c) voting or attempting to vote under any proxy not duly stamped, shall for
every such offence be punishable with fine which may extend to five hundred
rupees:

PROVIDED that, when any penalty has been paid in respect of any instrument under
section 35, section 40 or section 61, the amount of such penalty shall be allowed in
the same instrument upon the person who paid such penalty.

(2) If a share warrant is issued without being duly stamped, the company issuing the
same, and also every person who, at the time when it is issued, is the managing
director or secretary or other principal officer of the company, shall be punishable
with fine which may extend to five hundred rupees.

Section 63- Penalty for failure to cancel adhesive stamp6

Any person required by section 12 to cancel an adhesive stamp, and failing to cancel such
stamp in manner prescribed by that section, shall be punishable with fine which may extend
to one hundred rupees.

Section 66- Penalty, for not making out policy or making one not duly stamped7

Any person who,-

(a) receives, or takes credit for, any premium or consideration for any contract
of insurance and does not, within one month after receiving, or taking credit
for, such premium or consideration, make out and execute a duly stamped
policy of such insurance or

(b) makes, executes or delivers out any policy which is not duly stamped, or
pays or allows in account, or agrees to pay or allow in account, any money
upon, or in respect of, any such policy,

6 Indian Stamp Act, 1899.

7 Indian Stamp Act, 1899.

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shall be punishable with fine which may extend to two hundred rupees.

Section 69- Penalty for breach of rule relating to sale of stamps and for unauthorized sale8

(a) Any person appointed to sell stamps who disobeys any rule made under
section 74, and

(b) Any person not so appointed who sells or offers for sale any stamp (other
than a [ten naye paise or five naye paise] adhesive stamp),

shall be punishable with imprisonment for a term which may extend to six months, or
with fine which may extend to five hundred rupees, or with both.

Section 68- Penalty for post-dating bills, and for other devices to defraud the revenue9

Any person who,-

(a) with intent to defraud the government of duty, draws, makes or issues any
bill of exchange or promissory note bearing a date subsequent to that on which
such bill or note is actually drawn or made; or

(b) knowing that such bill or note has been so post-dated, endorses, transfers,
presents for acceptance or payment, or accepts, pays or receives payment of,
such bill or note, or in any manner negotiates the same; or

(c) with the like intent, practices or is concerned in any act, contrivance or
device not specially provided for by this Act or any other law for the time
being in force,

shall be punishable with fine which may extend to one thousand rupees.

Conclusion- Importance of Stamp Duty

In the case of real estate transactions, mortgage deeds etc. which tend to be high, the stamp
duty value is also high. Stamp Duty charges also vary from state to state and is left to the
discretion of the state government. There is a state to state wide variation in stamp duty rates
across the country. In the state of Tamil Nadu for instance, about 8% of the property value is
claimed for stamp duty and about 1% is claimed for registration charges of the property.

8 Indian Stamp Act, 1899.

9 Indian Stamp Act, 1899.

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Stamp duty indicates a form of tax that is imposed on documents. Traditionally, a physical
stamp - tax stamp, needed to be part of the document to assert its legal validity. The stamp
duty has to be paid for the legal claim to become functional. It is imperative for various
different kinds of legal transactions including property related transactions.

When you purchase a property, there are a lot of allied costs that come with it. Such incurred
costs include the Stamp Duty and registration charges payable to the government. This
ensures that the document, which lays your claim to the property is legally valid.

Stamp duty needs to be paid for every document prepared through which any right, title,
interest or liability is created or transferred. The amount of stamp duty is dependent on the
appraised market value of the property. The process that determines the value of stamp duty
to be paid, based on property value evaluation by the Stamp Duty authorities is termed as
“Adjudication”.

In the case of real estate transactions, mortgage deeds etc. which tend to be high, the stamp
duty value is also high. Stamp Duty charges also vary from state to state and is left to the
discretion of the state government. There is a state to state wide variation in stamp duty rates
across the country. In the state of Tamil Nadu for instance, about 8% of the property value is
claimed for stamp duty and about 1% is claimed for registration charges of the property.

It was often felt that the government was repeatedly levying charges on the value of a
property, which would in all probability change hands several times, which means the
government gets to claim stamp duty charges on a fixed asset for an unlimited number of
times. Attempts were made a few years ago to levy charges only on capital appreciation and
not the property value as such, however till date stamp duty remains based on the market
value of the property.

It is imperative to pay stamp duty when you buy a property. If it is not paid, then document
cannot be registered and hence cannot be considered legal and valid. This means it will not
pass in court as proof for ownership of the property, which could pose grave problems when
any kind of conflict arises in the future.

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Bibliography

1. http://www.advocatekhoj.com/library/bareacts/indianstamp/3.php?Title=Indian%20Stamp
%20Act,%201899&STitle=Instruments%20chargeable%20with%20duty
2. http://www.legalservicesindia.com/article/article/effect-of-not-duly-stamped-instrument-
1333-1.html
3. http://www.indiainfoline.com/article/news-sector-others/what-is-stamp-duty-why-to-pay-it-
113111500056_1.html
4. http://www.readyreckoner.in/newtopics_stamp-duty-india_0_0_1.html
5. http://www.incometaxindia.gov.in/Acts/Indian%20Stamp%20Act,
%201899/102120000000004946.htm

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6. https://www.legalcrystal.com/cases/search/name:indian-stamp-act-1899-section-12-
cancellation-of-adhesive-stamps
7. https://housing.com/news/stamp-duty-tax-gift-property/
8. http://www.doingbusinessinmaharashtra.org/Stamp_Duty_on_Transfer_Assets.aspx

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