Stamp duty is a crucial aspect of financial transactions in India, affecting everything from property purchases to stock market trades. Levied by the union government as well as the state governments, it accounts for a major part of their revenue.
If you plan to enter into any specified financial or legal transactions, understanding the concept of stamp duty is essential, especially considering the consequences of non-payment. In this article, we are going to delve into stamp duty, its purpose, and the various kinds of transactions that attract this particular tax.
What is Stamp Duty and Why is it Collected?
Stamp duty is a form of indirect tax that state governments and the Union Government of India levy on certain specified financial and legal transactions. The payment of stamp duty is essential to making a document legally valid and admissible in a court of law.
Other than the primary purpose of validating documents, stamp duty also serves as a major source of revenue for governments. The Indian Stamp Act of 1899 governs the rules and regulations regarding the levy of stamp duty. In addition to this, each state in the Union of India has its own state-level stamp act, which governs the levy of stamp duty within the state.
What Kind of Transactions Attract Stamp Duty?
The Indian Stamp Act of 1899, as well as the various state-level stamp acts, clearly specify the list of transactions for which stamp duty must be paid. Here is an overview of some of the key transactions that come under the purview of stamp duty.
- Sale or transfer of immovable property, such as land or building
- Sale or transfer of financial securities such as stocks, bonds, debentures, commodities, and derivatives
- Rental and lease agreements for residential, commercial, and industrial properties
- Legal documents, such as affidavits, power of attorneys, partnership deeds, and memoranda of understanding, among others
- Loan agreements, mortgage deeds, and promissory notes
Who Should Pay Stamp Duty?
For most financial transactions, including the transfer of property, stamp duty is levied on the buyer or transferee of the asset. However, in the case of a transfer of property by will, the transferee need not pay any stamp duty on the property.
Now, there are a few financial transactions where the stamp duty is levied on both the buyer (or transferee) and the seller (or transferor). Therefore, it is important to ensure that you get this aspect clarified before entering into any financial transaction involving stamp duty.
For most legal transactions and agreements, the party executing the agreement or instrument is often responsible for paying the stamp duty cost to the government.
How is Stamp Duty Paid?
Stamp duty can be paid in a number of different ways. Let us look at some of the most popular ways to pay the duty.
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By Purchasing Stamp Papers
The most common way of paying stamp duty in India is by purchasing non-judicial stamp papers. These papers are available in multiple denominations, enabling you to pay stamp duty of almost any value. Non-judicial stamp papers also have space where you can print or write information.
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By E-stamping
E-stamping enables you to pay stamp duty online and generate an electronic stamp certificate. This certificate must be attached to a document to indicate that the requisite duty has been paid. The Stock Holding Corporation of India Limited (SHCIL) has been exclusively appointed to handle all e-stamping needs.
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By Using Adhesive Stamps
Adhesive stamps are physical stamps purchased from authorised vendors for paying stamp duty. These stamps are affixed to the document and then cancelled to indicate that the duty has been paid.
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By Franking
Franking is a method of paying stamp duty. It involves using a special franking machine to imprint a stamp on a document to show that the required duty has been paid.
Stamp Duty on Stock Market Transactions
Stamp duty is also levied in the case of stock market transactions where financial security is transferred from one investor to another. Stock exchange-appointed clearing corporations are the entities responsible for the levy and collection of stamp duty on stock market transactions.
The rate and applicability of stamp duty vary depending on the nature of the financial security being transferred. Here is a table outlining the applicable stamp duty rates for a wide range of securities.
| Financial Security | Stamp Duty Rate (applicable on the total value of the transaction) | Payable By |
| Financial security other than debentures transferred on a delivery basis | 0.015% | Purchaser |
| Financial security other than debentures transferred on a non-delivery basis | 0.003% | Purchaser |
| Debenture transfer | 0.0001% | Purchaser |
| Equity futures contracts | 0.002% | Purchaser |
| Equity options contracts | 0.003% | Purchaser |
| Commodity futures contracts | 0.002% | Purchaser |
| Interest rate derivatives and currency derivatives | 0.0001% | Purchaser |
| Corporate bonds, commercial papers, securitised debt instruments, and certificates of deposits | 0.0001% | Purchaser |
| Repo transactions | 0.00001% | Borrower |
| Government securities | Nil | Nil |
| Financial security other than debentures transferred on a delivery basis through a tender offer for takeover, an offer for sale (OFS), buyback, or delisting of securities | 0.015% | Seller |
Stamp Duty Rates Across India
The various stamp acts passed by the states of the Union of India specify the rate of stamp duty to be charged for transactions that occur within the states.
For example, the stamp duty for the transfer of immovable property in Karnataka is 5% of the total market value of the property as per the Karnataka Stamp Act, 1957. Meanwhile, the stamp duty for the transfer of immovable property in Gujarat is 6% of the total market value of the property.
Since the rates vary from one state to another, it is advisable to use a stamp duty calculator to determine your obligations to the state in which you plan to execute a financial or legal transaction.
Conclusion
Stamp duty is integral to both the financial and legal systems of India. The payment of stamp duty is necessary to validate documents and is a major source of revenue for governments. Since the duty adds to the cost of a transaction, you must always make sure to factor in stamp duty when entering into a transaction, especially if the burden of payment falls on you.
FAQs
What is the penalty for non-payment of stamp duty?
If the stamp duty is not paid within the prescribed time limit, the authorities may refuse to register the document or agreement. Additionally, a penalty of 2% per month will be levied until the stamp duty is fully paid. The maximum amount of penalty, however, cannot exceed 200% of the duty.
Which act governs stamp duty payment in India?
The Indian Stamp Act of 1899 governs stamp duty payments in India. In addition to this, every state of the Union of India also has its own stamp acts, which govern the rates of stamp duty within their respective states.
Who is responsible for the payment of stamp duty on property?
In the case of the sale of a property, the buyer is responsible for the payment of stamp duty. The duty must be paid on or before the property document is registered.
How is stamp duty on property paid?
Stamp duty on property can be paid by purchasing non-judicial stamp papers equivalent to the amount of duty to be paid. Alternatively, it can also be paid online through the website of Stock Holding Corporation of India Limited (SHCIL), which is the entity responsible for all e-stamping matters within the country.
Who has to pay stamp duty on stock market transactions?
In the case of stock market transactions, the buyer is always the one who pays stamp duty. However, when security other than a debenture is transferred on a delivery basis through an Offer for Sale (OFS), a tender offer for takeovers, delisting of securities, or buybacks, the seller is responsible for paying stamp duty.
