Who Pays Stamp Duty - Buyer or Seller?

By NyayKart Legal Team Experts in RERA, consumer disputes and property law across India This Article Written by Sanchita Rajdev.

Introduction

In India, stamp duty on property transactions is usually the burden of the buyer unless otherwise stipulated between the two parties. A purchase of property is a big milestone to the people and the family. Nevertheless, a purchase of property is accompanied by a number of legal and financial obligations that do not require a person to pay the purchase price. Stamp duty is one of the biggest costs that tend to confuse both buyers and sellers.

A great number of individuals do not know who needs to pay the stamp duty and how it is calculated and negotiable. Such ambiguity in certain cases results in contentions or unforeseen costs at the last phase of registering the property.

The knowledge of stamp duty is essential since failure to pay it or not paying it may render the document inadmissible in a court of law as required by the Indian Stamp Act and may as well be punishable.

This article discusses the stamp duty, its significance, paying strategies, counting system, allowing points and some of the key rules that any purchaser and seller of property must be aware of.

What is Stamp Duty?

Stamp duty refers to a tax imposed by governments of states on legal documents of property transactions. It is accused of rendering documents legally binding and enforceable.

The stamp duty is paid with each change of property ownership that happens due to the following transactions:

•  Sale of property

•  Gift transfer

•  Lease agreements

•  Division or transfer of property.

•  Some of the transfers which are related to inheritance.

  
  

Stamp duty payment is an assurance that the transaction is officially registered and legally accepted by the government.

Stamp Duty Legal Basis in India.

In India stamp duty is regulated under:

•  The Indian Stamp Act, 1899

•   Respective State Stamp Acts (e.g. Maharashtra Stamp Act, 1958)

stamp duty is a state subject according to the Constitution of India and hence, stamp duty rates and regulations vary according to the state.

Why is Stamp Duty Important?

Stamp duty is used in various applications in the property transactions:

•  It approves ownership transfer documents.

•  It safeguards the rights of ownership of the purchaser.

•  It allows the government records to refresh ownership information.

•  It minimizes conflicts and fraudulent claims of property.

In case the right stamp duty is not paid the documents cannot be regarded as evidence in court and that can cause tremendous ownership problems further down the road.

Who is the payee of Stamp Duty- Buyer or Seller?

In the majority of the Indian property purchases, stamp duty is paid by the buyer. This is due to the fact that the responsibility lies on the transfer document which accords the ownership rights to the buyer.

This is why it often becomes the fault of a buyer.

Nevertheless, at some cases, the seller and buyer can agree together on the way this cost can be shared or adjusted as a part of negotiation. Although this is a possibility, practically, the payment is usually made by the buyers.

Aspect	Buyer	Seller
Stamp Duty Payment	Usually Pays	Rare
Registration Charges	Pays	No
Legal Obligation	Ensures payment before registration	Ensures clear title

In Which case Seller can pay.

Though not very common, there are situations where the sellers will be willing to pay or share stamp duty, and they include:

•  Stagnant property markets which sellers are giving incentives.

•  Promotional plans by builders which deal with everything.

•  Emergency sales where the sellers can be seen to incur part of the expenses.

In these instances, conditions of payment are arrived at by a bargaining rather than a binding way.

How is Stamp Duty Calculated?

The amount of stamp duty that is paid is based on the value which is greater:

The price of the property actually sold or Valuation set by government (minimum valuation). Stamp duty will be determined with reference to the circle rate in case a property is being sold at a lower value than the circle rate. The rate of stamp duties varies according to states and is usually between 5 and 8 percent of the property value in India.

Maharashtra Stamp Duty (Example).

In Maharashtra:

•  The stamp duty is usually between 5-7 percent.

•   In Mumbai, it is possible to use 1% metro cess.

•   Women consumers have been given 1 percent discount.

•   Reg. fees are usually 1 percent of the value of property (capped).

Given that buyers in Mumbai, Pune, etc. should check the updated rates prior to registration.

Stamp Duty Calculation example.

Taking the following example:

• Property sale price = ₹50 lakh 

• Ready Reckoner rate value = ₹55 lakh 

• Applicable stamp duty rate = 6% Stamp duty is calculated on ₹55 lakh because it is higher. Stamp duty payable = ₹55 lakh × 6% = ₹3.3 lakh. 

This means duty is calculated on the government value rather than the negotiated sale price.

Registration fee and Stamp duty.

Other than the stamp duty, buyers have to pay the property registration fees that are usually approximately 1 per cent of the property value subject to the state restrictions.

Thus, customers are encouraged to spend on:

•  Stamp duty

•  Registration fees

•  Legal charges

•  Brokerage fees

•  Loan processing charges

Disregarding such costs can lead to financial pressure at the time of end registration.

How to Pay Stamp Duty in India?

The modes of payment of stamp duty differ depending on the state, but most popular modes are:

•  Government portal pay through the internet.

•  E-stamping systems

•  Authorized bank payments

•  Franking services

•  Buying of physical stamp papers.

The convenience and transparency of digital payment systems is being promoted in most states.

Timeline for Payment

The stamp duty should be normally paid prior to or during property registration. Late payment can lead to fines or even denial of registration.

Before making registration appointments, buyers should make sure that money is prepared.

Consequences of Non-Payment

Lack of proper stamp duty could lead to:

•  Refusal of registration

•   Fines and recovery of deficit duty.

•   Document was not admissible as legal evidence.

Before the authorities validate the document, they may demand payment of duties that were not paid and penalties.

Stamp Duty Concessions and Benefits.

Under certain circumstances, the state governments tend to offer concessions.

Can Stamp Duty Be Negotiated?

The government sets the stamp duty rates and thus they cannot be negotiated. Nevertheless, sellers and buyers can agree on the price of the property to subsidize the cost of transacting.

To illustrate, the sellers are allowed to lower the price of the property a bit to offset the overall cost of buying the property on the side of the buyer.

Practical Tips for Buyers

It is the duty of the buyer to:

•  Make sure stamp duty rates in their state.

•   Check government circle rate value

•   Maintain payment records

•   Consult a specialist lawyer.

•   Make sure that documents are verified.

•   ensure proper valuation of property is made before payment of stamp duty.

Common errors that Buyers must avoid.

Common errors include:

•  Ignoring transaction costs

•  Making wrong payments on duty.

•  Failure to get property valuation checked.

•  Losing payment proof

• Disputes and delays are avoided in case of careful preparation.

Lawful Checking in the Process of Property Purchase.

Purchasers are advised to confirm before stamp duty and property registration, that they have:

•  Property ownership title

•  Permits and licenses by the government.

•  Encumbrance certificate

•  Pending legal disputes

Stamp Duty Effect on Investment and resale.

Stamp duty greatly adds to the cost of acquiring property and thus affects the investment decisions. Transaction costs should also be taken into account when estimating possible returns by investors.

The resale will also be influenced by high transaction taxes, as the subsequent consumers will pay stamp duty once again. Consequently, stamp duty has an indirect impact on the demand of property and price patterns.

When estimating profits on resale, investors usually add stamp duty and registration charges to the cost of its total acquisition.

The case of Stamp Duty in Under-Construction vs Ready Properties.

The payment of stamp duty is different according to the type of property.

Under-Construction Property

The stamp duty is normally paid during the registration of the property and it is often paid near the time the property is actually possessed or the agreement entered into as per the state laws.

Ready-to-Move Property

Stamp duty is paid instantly at registration since transfer of ownership occurs instantly.

Consumers are to specify when they are going to pay developers or attorneys.

Stamp Duty for NRI Buyers

NRI buyers who purchase property in India have to pay the same stamp duty as resident buyers. 

When buying property overseas, NRI has to make sure that he or she meets the laws and paperwork rules of the banking sector.

Is it possible to pay Stamp Duty in Home Loans?

Home loans are usually used to finance value of property but are not always used to finance stamp duty and registration cost. Customers tend to have to get external monies to meet these expenses.

Other banks might have restricted coverage based on the eligibility and therefore buyers are supposed to make arrangements in advance before taking the loans.

Stamp Duty Payment Digital Transformation.

There is a rising trend of the use of digital system in property transactions in India. Many states now provide:

•  Online stamp duty payments

•  E-registration facilities

• Online checking in (verification) portals.

Frequently Asked (FAQ)s.

1.Does India have refundable stamp duty?

In some instances that are set by the state regulations and depending on time, stamp duty can be reimbursed when a transaction is canceled.

2.Who is liable to stamp duty on resale property?

In resale transactions the stamp duty is usually paid by the purchaser.

3.What will become of underpaid stamp duty?

There is a possibility of penalties and the document will not be accepted as a legal evidence unless the deficit duty is paid.

4. Is the stamp duty payable on the gift deeds?

Yes, gift deeds are liable to stamp duty but in some states concessional rates are applicable in the case of family transfer.

5. Is stamp duty varied in case of commercial property?

Yes, there can be residential and commercial rates based on the law of the state.

Conclusion

In India, the stamp duty is vital in property trade and is mostly paid by a buyer during the transfers of properties. The knowledge of its calculation and the time when it should be paid prevents legal conflicts and accounting shocks.

Buyers are advised to think of the costs of transactions and document them well in order to have smooth proprietorship. Safe and successful property investment is achieved because of awareness and preparation.

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