Stamp Duty Charges For A Residential Property

Stamp duty is a tax which is collected by the government. It is a compulsory tax which is payable under Section 3 of the Indian Stamp Act, 1899. A stamp duty paid document is considered as a valid legal document and can be used as evidence in court of law. It is payable either before the execution of the document or on the day of execution of the document. The State Government collects the stamp duty so as to validate the registration agreement which exists between the seller and the buyer. Without paying stamp duty charges, it is difficult to legally claim ownership of property. Thus, paying stamp duty is crucial.

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Will sellers have to pay stamp duty?

Possession of property is the physical transfer of property, but there is also a requirement to obtain legal proof of ownership. For this purpose, it is important for the property to be registered. At the time of registration, the buyer has to pay the stamp duty, which is a government tax that is levied on property transactions. It is only in the cases of an exchange of property that both the seller and the buyer have to share the cost of the stamp duty equally.

What is the stamp value of a property?

The levy of stamp duty is controlled by the respective State Governments and so the rate of stamp duty varies from state to state. In most states in India, the stamp duty rate varies from 5% to 7% of the total market value of the property whereas 1% of the total market value of the property is charged as a registration fee.

The following factors determine the stamp duty charges of a property:

• Age of the property

Since stamp duty is calculated as a percentage of the total market value of the property, old real estate property has a lesser amount to be paid as stamp duty charges, whereas new real estate property has higher stamp duty charges.

• Age of the owner

Most State Governments has subsidised stamp duty charges for senior citizens.

• Gender of the owner

Women get a discount on the payment of stamp duty charges if the property is registered in her name. Men have to pay an extra 2% stamp duty as compared to women while registering a real estate property.

• Purpose of the property

Properties that are to be used for commercial purposes have to pay a higher stamp duty charge as compared to properties that are to be used for residential purposes.

• Location of the property

Where the real estate property is located also plays a major role in the charge of stamp duty. Properties located in the panchayat limits or at the outskirts of the town have to pay a lesser charge as stamp duty, as compared to a property which is located in a municipal locality.

What is the use of stamp duty?

Stamp duty is a legal tax which has to be paid in full. It acts as evidence in the event of a dispute regarding the sale or purchase of a property. The stamp duty levied is controlled by the State Government and thus, the rate of stamp duty varies from state to state.

Can stamp duty be avoided?

No, payment of stamp duty is essential and cannot be avoided. This is because, without the payment of stamp duty charges, a person will not be able to claim legal ownership over his/her property.

To obtain legal ownership of the real estate property, it is necessary to pay the stamp duty charges, which is a mutual agreement between the buyer and the seller. This statutory fee is levied by the government for the registration of the property.

How do I claim stamp duty charges exemption?

While purchasing or constructing a house property, it is necessary to realize that there are methods of obtaining stamp duty charges exemption. Stamp duty charges and registration fees and other expenses that are directly related to the transfer are allowed as a deduction under Section 80C of the Income-tax Act, 1961, up to a limit of Rs1.5 lakh.

This deduction can be claimed while filing the income tax return of the relevant year, i.e., the year in which the stamp duty charges and registration fee are paid. For example, if the property is bought on 30^th August 2019 and the stamp duty charges and registration fee are paid, these expenses can be claimed under Section 80C in the financial year 2019-20.

If the property has been purchased jointly, the co-owners can claim these expenses. These can be claimed in their respective income tax returns based on each owner’s share. However, the limit of Rs. 1.5 lakhs as mentioned under Section 80C shall apply.

It is necessary to claim this deduction, the construction of the property has to be completed and that a person should have legal possession of the property at that point of time. The stamp paper should be in the name of the buyer, and not in anyone else’s name. At the time of filing for income tax returns, a person does not have to submit any proof. However, if the Income Tax department asks for any proof, documents such as the sale deed, proof of stamp duty charges paid, proof of registration fee paid, home registration certificate, etc, can be submitted as proof.

What if I don’t pay stamp duty?

Buyers of real estate property will always try to reduce the cost of purchase of a property. They may do so by negotiating the price of the property with the seller or try to obtain a cheaper home loan. Sometimes, has also been noticed that buyers try to avoid the payment of stamp duty. Stamp duty is a charge that a buyer pays to the government at the time of registration of the property.

Evasion of stamp duty is a serious offense and is punishable with either fine or imprisonment or both, depending on the amount that has been evaded. According to the Indian Stamp Act, 1899, the offender has to pay a penalty of Rs 50,000 or 20% of the evasion amount, whichever is more (if the amount evaded is up to Rs 10 lakh). If the amount which has been evaded is more than 10 lakhs, the punishment is a fine of Rs 50,000 or imprisonment up to 1 year or both fine and imprisonment.

When should stamp duty be paid?

Stamp duty is levied on the market value of the property involved in a sale, gift, exchange or settlement. The market value of the property is the value it would fetch if sold in the open market. Any sale or transfer of property involves the payment of stamp duty. Usually, stamp duty has to be paid on or before the date of executing a document. The instrument can be written on plain paper and stamp duty can be paid through DD or pay the order within two months from the date of execution of the instrument. It should be certified by the jurisdictional sub-registrar.

Conclusion

The stamp duty is a fee that is levied by the State Government to validate the registration of new property. The value of the stamp duty that is to be paid varies from 5%-7% of the market value of the property whereas the registration fee is 1% of the value of the property. Since this type of fee is levied by the State Government, the stamp duty charged differs from state to state.

It is thus important to verify the amount of charge that has to be paid based depending upon the charges of the concerned state in which the real estate property is located. Also, stamp duty is a compulsory fee that has to be paid. It cannot be avoided; however, there are certain exemptions that can be availed after the stamp duty of a property has been paid.