Understanding ‘Stamp Duty’ and Its Importance in Property Transactions

September 14, 2024

Real estate transactions are governed by rules and regulations laid out by the government. These rules help the government maintain records of the transactions between parties and act as proof of the transfers. They help maintain transparency of the transactions, which is useful during a legal dispute. The registration process is a proof of physical property transfer from the owner to the buyer. The property gets registered in the buyer’s name and its record is maintained in the local municipal office. During registration, the buyer pays the authorities a fee known as the stamp duty.

This blog discusses Stamp duty and its importance as per legal requirements:

What is Stamp duty?

Stamp duty is a state-imposed tax levied on the buyer when they purchase immovable property from the seller. The stamp duty rates are determined by the state governments and usually vary between 5% to 8%. The stamp duty must be paid in full when the property gets registered. The payment must be made when the legal document is executed, at the time of execution, or one working day after. If not paid within this period, the buyer will incur fines up to 2% per month or 200% of the amount to be paid. The parties involved in the transaction must submit necessary documents like transfer instruments, sale agreements, selling certificates, etc.

Factors affecting stamp duty

1. Property Type: The rate of stamp duty can differ for residential, commercial, and agricultural properties.
2. Location: Properties in prime areas cost more than the average market rate. The stamp duty for such properties will be higher as it is calculated as a percentage of the property.
3. Property value: The stamp duty is calculated as a percentage of the real estate property hence the value determines the charge.
4. Gender and Age: Some states offer concessions on stamp duties for women and senior citizens to encourage home ownership among these weaker demographics.
5. Joint ownership: The stamp duty charges may vary for jointly owned properties.

Stamp duty is a significant charge to be borne by the buyer. It is essential to understand the calculation and the amount. For example – if the property value is 1 Crore, then the stamp duty may be between 5 to 8 Lakhs. This is a significant sum and should be considered and planned for in advance. One can use the stamp duty calculator for their states to calculate the stamp duty and be prepared to pay it in advance.