How Are the Stamp Duty Rates Decided in a Property Transactions

Updated on: 18 Jan 2024 // 4 min read // Home Loans
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What do you do when you decide to buy a house? You check out the best Home Loan deals in the market. You scout the internet to find out the Current Home Loan Interest Rates. However, a housing loan doesn’t just include interest cost. You also have to pay stamp duty to the Government on every property transaction. What is stamp duty and how do you calculate the stamp duty?

The Concept of Stamp Duty

Any transaction involving the transfer of rights in an immovable property attracts a compulsory tax known as stamp duty. Remember, we have used the words, ‘transfer of rights.’ Hence, it includes purchase or sale of property, transferring property to others other than by way of sale such as inheritance and gifts, equitable mortgage, and so on. Therefore, we can say that whenever a property changes hands, you incur stamp duty. The rates differ with each state and from transaction to transaction.

How Do You Calculate Stamp Duty?

Every state maintains a ready reckoner of the value of properties in its jurisdiction. A copy of the ready reckoner is available at the Sub-Registrar’s office. You can also check this online. Remember, the value of the property can differ from street to street. It is advisable to check the value of your property before preparing the sale agreement. This value is known as the guideline value.

There is another concept of valuation known as the market value of the property. In an ideal situation, the market value should be equal to the guideline. However, in reality, it is not so. The market value depends on the demand and supply situation at that particular moment. The guideline is a broader concept and does not account for current market fluctuations. Hence, you find that the market value will be different from the guideline value.

You have to pay stamp duty on the higher of the two, the guideline value or the agreement value. For example, if the guideline value is 40 Lakhs and the market value or the agreement value is 50 Lakhs, you have to pay stamp duty as applicable to 50 Lakhs. Similarly, if the agreement value is 35 Lakhs, you have to pay stamp duty on 40 lakhs, the guideline value.

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Who Pays the Stamp Duty?

In all cases, except the equitable mortgages, the onus of paying the stamp duty is on the beneficiary. In case of a sale-purchase transaction, the purchaser pays the stamp duty. Similarly, it is the transferee, or the recipient of the gift pays the stamp duty. In case of a mortgage, the creator of the mortgage pays the stamp duty.

The Quantum of Stamp Duty

The quantum of stamp duty depends on various factors:

  • Status of the property – Old or new
  • Location – City, rural, metropolitan area and so on
  • Age of the owner – Some states have concessions for senior citizens
  • Gender – Some states have lower rates of stamp duty for women beneficiaries
  • Usage – Residential or commercial
  • Type of property – Flat, farmhouse, independent bungalow, and so on

The Rate of Stamp Duty

The stamp duty rate differs from state to state and from purpose to purpose. It usually is around 3% to 10% for a sale-purchase transaction. It is different for other purposes such as transfer of ownership other than by way of sale, mortgage, and so on. You can get an estimate rate from the Sub-Registrar’s office.

For example, in Mumbai and Delhi, it is 5% whereas in Chennai it is 8%.

How Do You Pay Stamp Duty?

There are 3 ways of paying stamp duty:

  • Non-Judicial Stamp Paper Method Buy non-judicial stamp paper for the requisite value and execute the sale agreement on that paper. Subsequently, you have to register the deal within four months at the Sub-Registrar’s office.
  • Franking Method Print the agreement on a plain bond sheet. Submit this bond sheet to the authorised bank that processes the documents through a franking machine. You pay the amount to the bank.
  • Pay Stamp Duty Online Some states allow you to pay stamp duty online through RTGS/NEFT. You get the stamp duty certificate that contains the details such as date, stamp duty type, and so on. Download the same for the registration.

What Will Happen if You Pay Inadequate Stamp Duty?

Some people undervalue the property so that they incur less stamp duty. It is naturally a loss to the state exchequer. In case of detection, you have to pay the penalty ranging from 8% to 20% of the actual stamp duty. The penalty is in addition to the difference in the actual stamp duty and the stamp duty paid at the time of registration. Nowadays, it is not easy to do so because of the concept of the guideline value. The Government revises the guideline value every year in January.

How Can You Save on Stamp Duty Charges?

It is advisable to pay the correct amount of stamp duty. Some states allow concessions for senior citizens and female beneficiaries.