Who Pays the Stamp Duty- Buyer or Seller?

By NyayKart Legal Team - Experts in RERA, consumer disputes and property law across India.

This Article written by Harsh Vardhan Mishra fourth year B.A.LL.B from Banaras Hindu University.

In real estate, ‘who pays’ is just as important as ‘how much to pay’. If you are signing a property deal, one question often arises: Who is responsible for paying the stamp duty- the buyer or the seller? While generally it is believed to be a mutual obligation, Indian law provides a fairly clear answer to the question. 

What is Stamp Duty? 

The term “stamp duty” is not specifically defined under any legislation. However, the Indian Stamp Act, 1899 is the principal legislation that governs stamp duty in India. In simple terms, it can be understood as a statutory levy imposed on legal instruments to give legal validity to the transaction. It is a statutory tax that is imposed by the Government while making any real estate transaction such as sale deed, gift deed, lease deed relating to immovable property in order to legally validate the transaction. 

The payment of stamp duty is mandatory under the Indian Stamp Act, 1899 and failure can lead to penalties. Stamp Duty makes the document admissible as evidence in a court of law and without stamp duty, a property document is legally defective. Now, apart from the legal authentication, it is also a significant source of income for the governments.

Legal Position: Who pays the Stamp Duty? 

As per Section 29 of the Indian Stamp Act, 1899, the liability to pay stamp duty depends on the nature of the transaction. Generally, in the property transactions like purchasing of a house, the buyer (purchaser) is legally responsible for paying stamp duty. It is because the buyer is acquiring the ownership rights and the document is executed for his benefit. 

However, the opening words of Section 29 -“in the absence of an agreement to the contrary”- completely alter the position. If the agreement between the buyer and the seller expressly provides that the seller shall pay the stamp duty or seller and buyer will share the amount, then the liability to pay stamp duty rests accordingly.

Type of Instrument	Who Pays Stamp Duty?
Sale Deed	Buyer
Gift Deed	Donee (person receiving the gift)
Lease Deed	Lessee (Tenant)
Exchange Deed	Both parties equally
Partition Deed	Parties to Partition
Mortgage Deed	Borrower

How to calculate stamp duty? 

Under the Constitution of India (Seventh Schedule), while the power to levy stamp duty flows from Entry 44 of the Concurrent List, the rates of stamp duty are prescribed by the State Governments under Entry 63 of the State List.

Therefore, while the Indian Stamp Act, 1899 lays down the framework, each State has its own Stamp Act or amendments (e.g., Maharashtra Stamp Act, 1958) which prescribe rates, procedure, exemptions, and penalties. 

Accordingly, each state has its own stamp duty rates depending upon several factors such as nature of the transaction, value of property, location of property, intended use of property etc. Suppose Mohan purchases a house in Mumbai, Maharashtra worth Rs. 40,00,000 and the rate of stamp duty in Mumbai for a male is 6%. So, he has to pay 

Stamp Duty - 6% of Rs. 40,00,000 = Rs. 2,40,000 

Here is the list of the stamp duty rates of some states 

States	Stamp Duty
Uttar Pradesh	6% for Female  7% for Male
Maharashtra	5% to 7%
West Bengal	6%
Kerala	8%
Gujarat	4.9%
Karnataka	2% to 5%
Delhi  Rajasthan  Madhya Pradesh	4% to 6%  5% for Women  6% for Men  7.5%
Tamil Nadu	7%

Note: Stamp duty rates are indicative and subject to change as per notifications issued by the respective State Governments.

How to Pay Stamp Duty? 

Stamp Duty in India can either be paid online or offline depending upon the state in which the property is located. The most common method of paying the stamp duty is through physical stamp papers where you can purchase stamp paper from an authorised vendor and write down your details. However, in this technological era, most of the states allow online payment through their official Stamp and Registration Department portals (e.g. GRAS in Maharashtra) or through the e-Stamping system operated by authorised agencies (e.g. Stock Holding Corporation of India Ltd. for e-Stamp). Alternatively, stamp duty can also be paid directly at the Sub-Registrar’s office at the time of registration and lastly, Franking is another recognised mode of payment where stamp duty is paid at an authorised bank or franking centre and the document is stamped with a franking mark indicating the amount of duty paid, which is treated as valid stamping under law. It is necessary that stamp duty must be paid before or at the time of execution of the document. 

Stamp Duty on Agreement to Sell

Many people believe that stamp duty is payable only at the time of execution of the final Sale Deed. However, this is not entirely correct. In several States, including Maharashtra, stamp duty is also payable on an Agreement to Sell. Such stamp duty is calculated based on the consideration amount or the ready reckoner value, as applicable under State laws. The stamp duty paid on the Agreement to Sell is usually adjusted at the time of registration of the Sale Deed. Failure to adequately stamp the Agreement to Sell can attract penalties and may affect the enforceability of the agreement, even though ownership is transferred only through a registered Sale Deed. However, an Agreement to Sell by itself does not transfer ownership, which is transferred only through a duly stamped and registered Sale Deed.

Stamp Duty vs Registration Charges 

Often, people mix up registration charges and stamp duty but one shouldn’t confuse them. They both are different. Stamp duty is a tax levied on the legal document itself, whereas registration charges are the fees paid for registering that document with the Sub-Registrar. In most property sale transactions, both stamp duty and registration charges are paid by the buyer. 

Consequences of Non-Payment 

When stamp duty on a property document is not paid, underpaid, or paid late, there are some serious legal consequences such as- 

● Heavy Penalties and Interest - Mostly, Stamp Authorities may impose a penalty which can extend up to 10 times the amount of deficient stamp duty. In addition to penalty, interest is charged for delayed payment of stamp duty. 

● Inadmissible as evidence- When the stamp duty is not paid and some dispute occurs, the documents cannot be used in court of law as evidence. 

● Registration May Be Refused- Sub-Registrar offices may refuse to register the document, suspend mutation and title transfer or deny certified copies until dues are cleared. This affects resale, loans, and inheritance planning.

Can we get a refund of stamp duty? 

S. 54 of the Indian Stamp Act 1899 discusses the Refund of the stamp duty. In India, such refund is possible only in limited circumstances for example when stamp duty is paid but instrument is not executed or when it is overpaid by mistake or when the document becomes void or unenforceable due to some legal reasons. The key essential is that no rights should have been created under the document, once the right is created, stamp duty becomes non-refundable. 

Stamp Duty on Under-Construction Property

In case of under-construction properties, stamp duty is generally payable at the stage of execution of the Agreement for Sale. The stamp duty is calculated on the total value of the property, which may include the land value and the construction cost, depending upon the applicable State Stamp Act. In most States, stamp duty is charged on the higher of the agreement value or the government-prescribed ready reckoner rate. Buyers should verify the applicable valuation method to avoid future disputes or additional liabilities.

Ready Reckoner / Circle Rate and Stamp Duty

Stamp duty is not always calculated solely on the transaction value mentioned in the agreement. State Governments prescribe minimum property values known as Circle Rates or Ready Reckoner Rates. Stamp duty is payable on the higher of the agreement value or the ready reckoner value. If the agreement value is lower than the prescribed circle rate, stamp duty must still be paid on the higher government-determined valuation.

Stamp Duty on Power of Attorney

Stamp duty is also payable on Power of Attorney documents relating to immovable property. The amount of stamp duty depends on the nature and purpose of the Power of Attorney. A Power of Attorney executed without consideration for limited purposes attracts nominal stamp duty. However, where a Power of Attorney authorises the sale or transfer of property or is executed for consideration, it may attract stamp duty equivalent to a conveyance in certain States. Therefore, parties must carefully examine the scope and intent of the Power of Attorney before execution.

Recent Practical Developments

In recent years, many State Governments have shifted towards online and electronic modes of payment for stamp duty and registration. E-stamping, online payment portals, and compulsory pre-registration payment have become common, while the use of physical stamp papers for high-value transactions is gradually reducing. Parties should ensure compliance with the latest procedural requirements prescribed by the concerned State Stamp Authorities.

Conclusion 

In a real estate transaction, payment of stamp duty is a necessity which provides legal validity and enforceability to the document. Under Indian law, the buyer is primarily responsible for paying stamp duty as the transfer of ownership is made in his/her favour. However, parties may mutually agree to share or shift this burden. It is important to make proper payment of stamp duty on time to ensure smooth registration, protect ownership rights, and prevent future legal complications. Therefore, understanding and complying with stamp duty obligations is essential for a secure and dispute-free property transaction. 

Frequently Asked Questions (FAQs)

1. What is stamp duty? 

Stamp duty is a statutory tax paid to the State Government on legal documents related to property transactions, such as sale deeds, gift deeds and lease deeds. It gives legal validity to the document and makes it enforceable in a court of law. 

2. Who pays stamp duty in case of a sale deed? 

In a sale deed, stamp duty is usually paid by the buyer because he is the person who is getting the benefit from the transaction.

3. Is stamp duty mandatory for all property transactions? 

Yes. Stamp duty is mandatory for property-related documents such as sale deeds, gift deeds and lease deeds. Without adequate stamp duty, the document has no legal validity. 

4. Can stamp duty be negotiated between the buyer and the seller?

Yes, the buyer and seller may mutually agree to share or alter the responsibility of paying stamp duty. However, legally, the buyer remains primarily liable to the stamp authorities.

5. What happens if stamp duty is not paid or is insufficiently paid? 

Non-payment or short payment of stamp duty can lead to penalties, interest, refusal of registration, and the document being inadmissible as evidence in court.

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