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Stamp Duty: How Does It Impact A Homebuyer’s Budget?

by Tavaga Invest
Stamp Duty

By: Tavaga Research

One of the biggest financial decisions that individuals make during their lifetime is to buy a house. There are several decisions associated with buying a property such as choosing a house that fits your needs, making down payments, applying for loans, signing the sale agreement, etc. It can get quite overwhelming, both emotionally as well as financially.

One important final step in the process is the possession and registration of the property. Having gained possession of the property it is your responsibility to get it registered under your name.

Physical transfer of the property is known as possession and is usually not sufficient. You need evidence of its ownership. The ownership can be claimed once you’ve registered it under your name in the local municipal records, with the seller attesting that the property is being transferred to you.

At the time of the registration, you have to pay a state government tax levy known as the stamp duty.

What is Stamp Duty?

Stamp Duty definition

Stamp duty is a one-time tax levied by the state government at the time of the registration of property on the market value of the property. The importance of the stamp duty arises from the fact that it validates the registration of the property and legalizes the property ownership. This protects people from potential future legal disputes. Stamp duty differs from state to state, ranging from 4% to 10%, across India and is a state subject. Stamp duty rates are lower for a property registered in a woman’s name.

The duty should be paid immediately and in full to avoid any penalties. Any delay in the payment of the stamp duty attracts a 2 percent penalty per month up to a maximum of 200 percent of the outstanding amount. Therefore, this duty should be paid in full and on time before the execution of the transaction. In the absence of an agreement to the contrary, it is the responsibility of the purchaser to pay the stamp duty. However, in the case of the exchange of properties, both parties are liable to pay the duty equally.

Why does stamp duty matter now?

Recently, the Maharashtra government announced massive reductions in stamp duty by up to 3 percent, after which the stamp duty in Mumbai stands at a low of 2 percent. Post the cut, Mumbai has seen a massive jump in registrations posting a 67 percent jump year-on-year (YoY) in the month of November.

In total, the city of Mumbai witnessed 9,301 residential registrations in November 2020, making it the best November of the last nine years.

More importantly, coming amidst the pandemic, these cuts demonstrate how important stamp duty considerations are while buying a property.

Stamp Duty India

Factors considered for stamp duty calculation

  1. Gender of the owner: Several states, such as Bihar and Goa, offer concessions for female real estate owners
  2. Age of the owner: Some states, offer discounts to senior citizens.
  3. Location of the property: Stamp duty varies for property within the municipal limits of a city compared to one falling outside it. It is always higher for properties falling within the municipal limits.
  4. Project Amenities: If a housing project has several high-end amenities including elevators, swimming pools, gyms, communities halls, clubhouses, then some state as Uttar Pradesh charge a higher stamp duty.
  5. Type of the property: Stamp duty also varies by the type of property; flat, independent house, etc.

How to pay stamp duty?

There are three methods to pay stamp duty:

  1. E -stamping: This method allows you to pay stamp duty online. Visit the SHCIL (Stock Holding Corporation of India) website, where you need to select the state, fill and submit the form along with the required payments. You will get a certificate with a Unique Identification Number (UIN)
  2. Franking: Visit an authorized franking agent along with documents detailing the agreement, who stamps those documents, indicating that the duty has been paid. Many banks offer franking services in exchange for a charge, known as franking charge
  3. Physical Stamp Paper: A common method used in stamp duty payments. Payers can buy stamp papers, equaling the value of the stamp duty applicable, from any authorized seller. The details of the agreement are then printed on the paper.

Stamp duty and registration charges

While stamp duty is a charge levied by state governments on the value of the transaction, the registration fee is the cost that users pay for the service of recording the contract or the deed in the government’s record. In simple words, it is a charge that the state governments levy to maintain the register of documents. To a great extent, the above process lends inviolability to papers.

How are stamp duty and registration charges calculated India?

For instance, assume a person buys a property in Delhi for Rs 1 crore. Given that the applicable stamp duty in the city is 6 percent, that individual will have to pay 6 percent of the Rs 1 crore as stamp duty, i.e. an amount equivalent to Rs 6 lakhs. An additional Rs 1 lakh has to be paid towards the registration charges of this property.

Can stamp duty be claimed as tax deduction?

Stamp Duty Exemption

Under Section 80C of the Income Tax (IT) Act, a homebuyer can claim deductions of up to Rs 1.5 lakh in a financial year on home loan principal payment along with payments made towards stamp duty and registration charges.

Deductions are also offered for a range of investments including PPF, PF, life insurance, etc. The avail these deductions the buyer will have to prove that the registration charge and stamp duty were out of his pocket. The deduction will be void if the money is borrowed from somewhere. An important point to keep in mind is that the stamp duty is not refundable.

Stamp duty on Mutual Funds

Recent stamp duty changes

Stamp duty is also levied on the purchase of mutual funds and exchange-traded funds (ETFs), for both equity and debt funds. As per SEBI, a stamp duty equivalent to 0.005 percent will be levied on the purchase of mutual funds, while this is not applicable to the redemption of the units.

Additionally, stamp duties of 0.015 percent will be levied on the transfer of the units between Demat accounts. These charges will be auto-deducted on the purchase of units by the registrar and the transfer agent. For instance, suppose you invest Rs 5 lakh in mutual funds. The stamp duty will be Rs 25. So the effective investment amount will be Rs 499,975. Now, of the NAV of a fund is Rs 10, the units allocated will be 49997.5

What is the stamp duty in India?

Stamp Duty Charges in Various Cities and States

Stamp Duty Charges

States Stamp Duty Rates
Andhra Pradesh 5%
Arunachal Pradesh 6%
Assam 8.25%
Bihar Male to Female – 5.7%
Female to Male – 6.3%
Other cases – 6%
Chhattisgarh 5%
Goa Upto Rs 50 lakh – 3.5%
Rs 50 – Rs 75 lakh – 4%
Rs 75 – Rs 1 crore – 4.5%
Over Rs 1 crore – 5%
Gujarat 4.9%
Haryana For male – 6% in rural areas and 8% in urban areas
For female – 4% in rural areas and 6% in urban areas
Himachal Pradesh 5%
Jammu and Kashmir 5%
Jharkhand 4%
Karnataka 5% (above Rs 35 lakh) 3% (Rs 21-35 lakh) 2% (Less than Rs 20 lakh)
Kerala 8%
Madhya Pradesh 7.5%
Maharashtra 2- 3% (Till Dec 2020)
Manipur 7%
Meghalaya 9.9%
Mizoram 9%
Nagaland 8.25%
Odisha 5% (Male) 4% (Female)
Punjab 7% (Male) 5% (Female)
Rajasthan 5% (Male) 4% (Female)
Sikkim 4% + 1% (in case of Sikkimese origin)
9% + 1% (for others)
Tamil Nadu 7%
Telangana 5%
Tripura 5%
Uttar Pradesh Male – 7%
Female – 7%-Rs 10,000
Uttarakhand Male – 5%
Female – 3.75%
West Bengal Upto Rs 25 lakh – 7%
Above Rs 25 lakh – 6%

Is stamp duty refundable?

Refunds on stamp duty vary as every state has its own laws and regulations. In Maharashtra, a stamp duty refund can be claimed within six months of payment, in certain situations.

Does stamp duty include GST?

Stamp duty and GST are two different levies and there is no GST levied on stamp duty. However, at the time of buying any property, GST has to be paid along with stamp duty and property tax.

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