October 27, 2021

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An analysis of the registration requirements of a payable stamp duty

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This article is written by Niharika Goel, from VIPS, Guru Gobind Singh Indraprastha University. The article puts forth the registration requirements of the stamp duty in India, scrutinizing the administrative problems in the process and the need for reform compared to international practices. 

Table of Contents

The federal structure of India divided taxation powers between the Union government and the State government on certain principles. The State government in India imposes various stamp duty and registration fees on different times of transactions and instruments. For most State governments, stamp duty and registration fee stand as a significant source of revenue, and often it is a third or fourth most important source of tax revenues. However, a review of stamp duties indicates that the Indian rates are, in comparison, exceptionally high. It can be said that the tax may have become the third-largest revenue source of the Indian state. It still incurs a heavy burden of cost on the taxpayers. This eventually leads to evasion and fraud, which reduces the responsiveness of the real estate market in India. The economy of every country is based on agreements and contracts. Here, two parties agree on specific expressed terms and conditions, which are laid down in black and white, which becomes binding when signed by both the parties involved. Agreements being the soul and heart of businesses, need to be enforceable by law. They will be enforceable by law if they satisfy the provisions mentioned under the Indian Stamp Act, 1899 read with the Registration Act, 1908. Therefore, they should be duly stamped for being valid in the eyes of the law. According to the Indian Stamp Act,1889, stamp duty must be paid to record and keep track of all the transactions.

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The Indian Stamp Act is fiscal legislation with an objective to protect revenue & to collect revenue (tax) in the shape of stamps on transactions covered by the instruments. Stamp duty is a tax divided by the state on documents that are registered with the government, where a property is transferred from a seller to a buyer. The receipt or acknowledgment of payment of stamp duty will make you eligible as a legal owner of the aforesaid property. Moreover, payment of stamp duty acts as proof of ownership in the courts in case of any dispute. When your sale agreement is registered, signed and the stamp duty and registration charges are paid, this completes the process of ownership of a house property. Stamp duty shall also be applicable on conveyance deeds and power of attorney papers, but this may vary with each state’s governance. Stamp duty comes forth with certain types in India, such as the follows:

Impressed stamp 

An impressed stamp is produced by embossing, fixing, or impressing, which is done by franking machines in the bank.

Adhesive stamp 

These are the stamps that can be stuck on the documents using any form of adhesive, either postal or non-postal.

Postal stamps 

They have their limited application and are used for post-office-related transactions.

Non-postal stamps 

They have wider applications and some examples are; revenue stamps, fee stamp, insurance policy stamp, etc.

According to Black’s Law Dictionary, stamp duty means an additional charge levied on certain legal documents by purchasing a stamp to be placed on the said document. So from the above definition, it can be interpreted that stamp duty is a charge; it can either be fixed or variable, levied on certain legal documents. This means that certain documents can be excluded by law from stamping, and stamp duty can only be paid by purchasing a stamp and not by any other means.

The Indian Registration Act, 1908, governs the registration of documents. It specifically provides the documents which require compulsory registration under Section 17 and the ones whose registration is optional. The Indian Registration Act provides the legislation for protecting the public and preventing fraud through conservation of evidence, assurance of title, and publicity of documents. It, therefore, prevents people from entering into transactions related to a property where the person does not hold any right or possession of title over such property. Stamp duty and the registration fee are paid to the government to transfer or register various financial instruments and all the details related to financial transactions. For registering different types of instruments, differing amounts are registered as registration fees. For certain instruments, registration may be compulsory, and for others, it may be optional. In contrast, a registration fee is a payment made for a specific service provided by the government in recording contracts.

The Stamp Act and the Registration Act are not in pari materia. The principles that govern the stamp and the interpretations thereof cannot be applied to interpret the provisions of the Registration Act. 

Stamp duty is payable under Section 3 of the Indian Stamp Act 1899. The Act was introduced by the British during the colonial period as a means of revenue, and it is nothing but a charge on the service of registration provided by the bureaucracy. 

If there is a delay in payment of stamp duty, it attracts a penalty. A stamp duty paid instrument is considered a proper and legal document and has evident value and shall be admitted as evidence in court. Whereas, a document insufficiently stamped is not admissible as evidence in the court. 

Under Article 268 of the Constitution, stamp duties on documents shall be revised by the government of India but shall be collected and appropriated by the state within which such duties are leviable. Stamp duties can be broadly provided into two categories – judicial and non-judicial stamp duties. Other than duties for fees collected through the judicial stamp but not including stamp duty rates is a subject included in the concurrent list of the Seventh Schedule of the Constitution of India. While duties for fees collected through the judicial stamp are included in the state list.

List I

Rates of the stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies, and receipts come under the Union list on which Parliament has exclusive power to legislate.

List II

Rates of the stamp duty in respect of documents other than those specified in the provisions of the Union list about rates of stamp duty come under the State list, which means the state has the power to legislate.

List III

Stamp duties other than duties or fees collected through judicial stamps, but not including rates of stamp duty, come under the concurrent list, which means both the center and the state have the legislative power in this matter.

A non-judicial stamp paper for the appropriate value of the stamp duty must be purchased from a licensed vendor with the authority to deal with the stamp papers. The details of the transaction shall be written on stamp paper or shall bear the signature of all executants of the document.

There exist bands and franking agencies authorized to use the franking machine for such stamping, which require an application submission to the search agency to stamp such a document. For an e-stamp, one shall visit schilestamp.com, the official website of the stock holding corporation of India Limited, which is appointed as the body for all e-stamping operations in India considering the availability of search facilities in each state. 

Following certain recommendations and various committees’ governance, franking machines were also extensively introduced to address the fake stamp papers’ land records. Digitization is now underway in various states like Telangana, bringing coherence between different wings of the tax administration. Various state governments are also periodically reviewing the land prices to curtail the undervaluation of the assets.

An unstamped or defectively stamped document is not void, and it is effective from the date of its execution once it is properly stamped with or stamp duty or penalty levied and paid. Stamp duty is payable before execution of the document or on the day of execution of the document or the next working day of the executive search document. Any sort of or absence of due payment will put in 2% per month to the maximum of 200% of the deficit amount of stamp duty to be purchased in the name of either of the parties failing, which will disable the stamp paper. Therefore, stamp duty plays an essential role since the collector has the authority to impose a penalty up to ten times the nominal value of the stamp. The penalty may also reach up to 200% of the deficit amount.

In the case of New Central Jute Mills v. State of West Bengal (1963), the fact that stamp duty is a state subject was reiterated. When an instrument has to be executed in a state, it must be the stamp of that particular state where it has been executed or where the property is located. If the stamp falsely or mistakenly bores the wrong state, such instrument is held to be not duly stamped. The Supreme Court of India has upheld such a decision and stated that the instruments need to bear the stamp of the correct state in which the first duty-able event regarding the instrument has taken place.

Within four months of the execution of the document, it must be presented for registration before the appropriate authority, while Wills are exempted from this limitation.  A fine not exceeding ten times a registration fee can be imposed for such delay, and then the document can be accepted for registration which is initiated through an application to the sub-registrar.

Documents of immovable property must be registered with the sub-registrar office. Any other document needed to be registered must be either with the sub-registrar whose district the document has been executed or in any other sub-registrar’s office whose district the parties want the document to be registered. The registrar may also come to the registered residence of the party to register the document or deposit their will under special circumstances.

The documents are a copy of decree or order presented by a person who is executing or claiming search documents or may be presented by representatives or assignees of such a person, including the agents.

The documents must be presented with the passport size photo and fingerprints of the parties of the document and the fees for the registration of documents under the Act, which shall constitute a complete registration process.

The document becomes registered with the government safely, and the record of the ownership of immovable properties is safely kept with the registrar. The registration of documents through due process and verification proves the authenticity of the document’s background. This aspect makes it highly reliable and provides it as an authentic legal status that safeguards the persons during the settlement of disputes in a court of law or any government body. A well-registered document becomes admissible evidence of a person’s title or ownership of any property, amount of consideration in a trade document, or any other such vital information. Therefore, to protect oneself against fraud and other malpractices, it is always preferred to register the documents with due process.

A scrutiny of the policies brings forth a certain need for reform. With Stamp Duties, serious administrative issues arise which calls for reforms addressing these administrative problems.

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Valuation 

The values declared for stamp duty transactions are grossly understated, putting forth extremely high duty rates on conveyances.

Evasion

Because of the higher stamp duty, individuals try to look for alternatives to avoid the tax burden legally. 

Collection Cost

Considering the failure of providing profile precise information on collection cause the administrative cost of such collection of stamp duties are often believed to be very high compared to the revenue generated. This usually occurs because some forms of instruments are unproductive sources and generate little revenue, while few states have tried to computerize our use of modern methods associated with the government to achieve collection cost savings.

Corruption or fraud

Fraudulent production and use of stamp paper have been recognised as a significant problem in the administration of Sam taxes and duties, which is recently being considered an issue of national significance. Such episodes indicate the urgent need for administrative reform, as it leads to the state governments losing.

Individual Compliance Costs

Considering the boarding some steps required to pay stamp duty, the burden and overload of importance on individuals are quite significant.

The necessary steps for the payment of stamp duties include purchasing stamp paper for the required value from a licensed stamp vendor-provided he is a treasury or sub-treasury of the Government, followed by getting an instrument return on the stamp paper by a licensed leader-writer or an advocate for himself. The entire chaotic process of fine in case of a delay in such steps creates a huge hazard and burden on the individual.

Stamp duties and taxes on real estate transactions are quite high compared to practice and several other countries. Few jurisdictions in this area impose stamp duties exceeding 5%, and even in those cases, the higher rates are reserved for exceptional cases such as very high-value personal property. Lower stamp duty rates are not limited to industrial countries such as Vietnam and the Philippines, which have a stamp duty rate in the range of 1 to 2%. As noted earlier, the highest stamp duty rates in Indian states have likely been counterproductive; in that, they have provided a powerful incentive for corruption and fraud in systems with weak tax administration. This evidence shows that a wide range of countries on the income still have opted for a tax rate structure that may be both less distortion theory and less difficult to administer.

The federal structure of India divided taxation powers between the Union government and the state government on certain principles. The state government in India imposes various stamp duty and registration fees on different times of transactions and instruments.Stamp duty is payable to the state government for recognizing an agreement by the parties to an agreement. It is the revenue for the state government, even if the central government levies it, and if any agreement is inadequately stamped, the state government has the power to impound or nullify the effect of such an agreement. 

  1. https://cag.gov.in/uploads/media/Stamp-Duty-Registration-Fee-Manual-20200701115128.pd
  2. http://revenue.delhi.gov.in/wps/wcm/connect/DoIT_Revenue/revenue/home/e-sub+registrar/important+information+regarding+registration+of+property
  3. https://rcs.delhigovt.nic.in/content/circular-regarding-stamp-duty-agreement

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