Stamp Duties: A Burden on the Real Estate Buyer's Pocket

What is Stamp Duty?

Stamp Duty is a tax that needs to be paid to the State Government in the country of India. This tax duty is not required to be paid on transactions but on instruments such as gifts, power of attorney, certificates of sale etc. in order to maintain uniformity in rates for instruments of a profitable profile (like letters of credit, share transfers etc.). Entry 91, List 1, Schedule VII of the Indian Constitution tends to keep the power related to them only with the Central Government, which creates rules and policies which are applicable to all the states in India. The State can then decide the rates for all the other instruments. Most of the states follow the Indian Stamp Act of 1899 (with suitable amendments) but very few have placed their own legislations in place.

This tax is payable either before the execution day, or on the day of the execution, or, alternatively, on the next business day after the execution. The execution is supposed to occur when the people concerned place their signatures on the instrument. If the name of either of the executors is missing on the instrument, such an instrument will be treated as improperly stamped and maybe sent to the Collector of Stamps for recovering stamp duty. An instrument is considered legal by the court of law only if the proper stamp duty is paid on it.

Who is Accountable?

When an instrument is not accompanied with an agreement, it becomes the obligation of the purchaser to pay the stamp duty. Therefore, 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. It is mandatory therefore, to purchase the stamps 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 the people involved (the buyer, the purchaser and the preparer of the instrument) can be prosecuted under the Stamp Act.

How To Get The Market Value?

The duty is always calculated either on the basis of the market value or the stated value of the instrument in the agreement, depending upon which is more. To obtain the market value, one needs to know the price that the instrument (such as land for example) will fetch if it is sold in the open market. The market value is also calculated on the basis of the following factors:

1. The intended purpose of the land.

2. Plot size.

3. Estimation (market value increases if land prices are expected to rise).

4. Value of neighboring plots.

5. Bookings made by local authorities.

A person can have his case registered in the Collector’s office (under Section 47-A, Indian Stamp Act, 1899) if he finds that the market value calculated by the Registering Officer is too different from his own estimation. The Collector will then determine 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. Depending upon the final verdict, this amount is either refunded or adjusted towards the final settlement.

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