Stamp duty rates on property purchase in India

[ecis2016.org] 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 and registration charges are 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 evasion of stamp duty payments.

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What is stamp duty?

The government levies a tax 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 a legal validity.

Read our guide on 80C to know all about tax deductions for stamp duty payment on property purchase.

Stamp duty on registration of various instruments is imposed under the provisions of the Indian Stamp Act, 1899.

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What is 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, details the manner in which 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.

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. Home buyers 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 charge?

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.

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Apart from the property values, various other factors also determine the stamp duty a buyer will have to pay during 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 in 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 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.

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Stamp duty in key Indian states

Note: Charges mentioned are applicable on purchases in urban areas and for male buyers.

Stamp duty guide in key states

To check stamp duty and registration charges in UP, read our detailed guide here.

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To check stamp duty and registration charges in Tamil Nadu, read our detailed guide here.

To check stamp duty and registration charges in Punjab, read our detailed guide here.

To check stamp duty and registration charges in Chandigarh, read our detailed guide here.

To check stamp duty and registration charges in Chhattisgarh, read our detailed guide here.

*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 lakhs 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 lakhs is 2% in Karnataka.

To check stamp duty and registration charges in Karnataka, read our detailed guide here.

West Bengal stamp duty cut in 2021

November 1, 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. This reduction in stamp duty in West Bengal is applicable on property registration from July 2021 till December 2021.

To check stamp duty and registration charges in West Bengal, read our detailed guide here.

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Stamp duty rates in top cities

* Effective rate: The Maharashtra government, on August 26, 2020, reduced the stamp duty rates by 3% till December 31, 2020, to boost property sales that have been severely hit by the Coronavirus pandemic. From January 1, 2021 to March 31, 2021, the reduction will be 2%. From March 31, 2021, buyers have to pay 5% stamp duty on property registrations.

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 home buyers can currently purchase a property in state’s capital Mumbai, by paying 4% stamp duty.

To check stamp duty and registration charges in Maharashtra, read our detailed guide here.

With a view to support 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 3.50% stamp duty on 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 builder (under-construction property)
• Title documents of land owner (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 land owner 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.

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Non-judicial stamp paper method (or offline method)

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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.

Franking method

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 a proof that the stamp duty for the transaction has been paid.

E-stamping

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 the three stamp duty payment options available.

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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 a 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 loss 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 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 the 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 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 cost.

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 project 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.

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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 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 loan. Further, banks apply their own methods to evaluate the property. This means if a property is being sold for Rs 1 core, 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 loan.

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