Buying a property is both a happy occasion as well as a daunting task. There are so many procedures, legalities, and papers to be signed that unless one is systematic and organized it is possible to feel a bit out of depth. After you have finalized a property of your choice there are certain things in ensuring the legal ownership in your name.
Possession of property means the physical transfer of property when the keys are handed over to you. In addition there has to be legal documentation and registration of the property in the local municipal records in your name and stamp duty has to be paid, to ensure legal ownership. A clear concept of stamp duty will stand you in good steady.
What is Stamp duty?
Stamp duty is a tax levied and collected by the government on any property transaction. The concept is akin to income tax and it payable under Section 3 of the Indian Stamp Act, 1899.
In India, Stamp duty taxes are levied on many transactions like transfer of shares, promissory notes, rent agreements, partnership deeds, lease deeds, bank guarantees, home loans and many such transactions.
In case of any transaction of real estate, whether residential or commercial, stamp duty of required value has to be paid and stamp duty papers need to be signed to make the transaction legal and admissible in court. It acts as a legal evidence of a property deal. The payment of stamp duty ensures that the deal is recorded in the property purchase transactions maintained by the government.
The most important aspect of stamp duty is to calculate the amount payable. It is calculated on the market value or the agreement value of the property, whichever is higher. The amount will be determined on the basis of the registration documents and not the actual transaction value. Stamp duty varies from state to state and the government issues a Stamp Duty Ready Reckoner by 1st January every year. The rates can be easily calculated by referring to the Indian Stamp Act or the State Stamp Act. Only in specially difficult or complicated case the opinion of the Collector of Stamps will be required.
Stamp duty has to be paid in full before, on the day or the next working day of the execution of the sale agreement between the buyer and the seller. In case of delay there is a penalty of 2% on the deficit amount every month, to the maximum limit of 200%.
Stamp duty payment can be done in three different ways:
1. Signing on Non judicial papers, purchased from a licenced vendor, and on which all details of the agreement are written or printed. This is the most common method.
2. An authorized bank is given the stamp duty amount along with the agreement details printed out on a blank paper. The Bank then puts an adhesive stamp equivalent to the stamp duty on the document with the help of a franking machine.
3. E-stamping and this is the latest digital method of paying stamp duty.
Be very alert about paying stamp duty to ensure legal ownership when purchasing property. There has been case of builders cheating on unsuspecting buyers by not getting any stamp papers signed and doing all documentation on just company letter heads.