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.
Housing and urban affairs secretary Durga Shanker Mishra, on October 14, 2020, urged states to lower the stamp duty charges, to boost demand in India’s real estate sector, the largest employment-generating industry in India after agriculture. Addressing a webinar organised by industry body CREDAI in association with business management consultant Nangia Andersen India, the housing secretary said the move would significantly lower the cost of property purchase for buyers, consequently reviving growth in real estate.
With a consistent increase over the years, property values across India’s key residential markets have increased exponentially, making purchases quite unaffordable for the common man. However, property prices aren’t the only thing that home buyers have to worry about. The various other expenses that are associated with transactions, including taxes and cess, substantially push the cost of house purchase further up. Since stamp duty and registration charges figure right at the top of that list, one should be entirely aware of these two duties. We discuss what is the registration fee and stamp duty and the definition, process, and nitty-gritty involved in stamp duty and registration charges on property purchases in India.
The government levies a tax when there is a transaction of property (i.e., 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. 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.
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, talks about the manner in which registration of documents has to take place.
Judicial and non-judicial stamp duty
Stamp duties are categorised under judicial and non-judicial duties. While judicial stamp duties, better known as the court fee, are charges imposed on litigants in courts, the stamp duty on property transactions falls in the category of non-judicial charges, considering that it is a one-time payment on the value of the transaction. For the majority of states, the bulk of stamp duty revenues come from the tax on conveyance or sale deeds.
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.