Relevant FAQs on Stamp Duty – Indian Stamp Act, 1899 & Bombay Stamp Act, 1958
The Oxford Dictionary of Law defines “stamp duty” to mean a tax payable on certain legal documents specified by statute; the duty may be fixed or advalorem.
The Constitution of India provides three lists, viz. the Union List, State List and Concurrent List. The Parliament has exclusive powers to make laws with respect to any of the matters enumerated in the Union List, the Legislature of any State has the power to make laws with respect to any of the matters enumerated in the State List and both the Parliament and the Legislature of the State have the power to make laws with respect to any of the matters enumerated in the Concurrent List.
The Constitution of India lays down the provisions for levying taxes. This includes tax in the form of stamps on instruments recording certain transactions. The Stamp Act is a fiscal statute dealing with tax on transactions.
Under the Constitution of India, the power to levy stamp duty is divided between the Union and the State. The Parliament (Central Government) has the power to levy stamp duty on the instruments specified in Article 246 read with Schedule VII, List I, Entry 91 and the State Government has the power to levy stamp duty on instruments falling under Article 246 read with Schedule VII, List II, Entry 63.
The payment of proper stamp duty on instruments bestows legality on them. Such instruments get evidentiary value and are admitted as evidence in Courts1. A stamped document is considered more authentic and reliable than an unstamped document.
A. INDIAN STAMP ACT, 1899
Q. What is stamp duty?
Ans. It is a tax, similar to sales tax (VAT) and income tax collected by the Government. Stamp Duty is payable under section 3 of the Indian Stamp Act, 1899. Rates of Stamp Duty payable for different types of documents are as per Schedule I. Stamp Duty must be paid in full and on time. If there is a delay in payment of stamp duty, it attracts penalty.
Q. What is the purpose of Indian Stamp Act?
Ans. The purpose of enacting such an Act is to raise revenue for the local governments. Additionally, payment of stamp duty imparts legality to the document and this can be submitted as an authentic document in courts.
Q. Why Should Stamp duty be paid?
This is a requirement by the statute. A stamp duty paid document gets evidentiary value and is admitted as evidence in Court. Document not properly stamped, is not admitted as evidence by the Court.
Q. How should one sign an instrument affixed with adhesive stamp?
Ans. As per the provisions of section 12, any person executing an instrument affixed with adhesive stamp, shall cancel the adhesive stamp so affixed by writing on or across the stamp his name or initials. If such an adhesive stamp has not been cancelled in the aforesaid manner, such a stamp is deemed to be unstamped.
Q. How should instruments stamped with impressed stamp be written?
Ans. As per the provision of section 13 of the Indian Stamp Act, 1899, any instrument on an impressed stamp, shall be written in such manner that the stamp may appear on the face of the instrument and cannot be used for or applied to any other instrument i.e., cancel the adhesive stamp so affixed by writing on or across the stamp his name or initials. If such an adhesive stamp has not been cancelled in the aforesaid manner, such a stamp is deemed to be unstamped.
Q. How are stock and marketable securities valued?
Ans. As per the provision of section 21 of the Indian Stamp Act, 1899, any instrument chargeable with ad valorem duty in respect of any stock or any marketable or other security, such duty shall be calculated on the value thereof on the day of the date of the instrument.
Q. How is a property subject to mortgage, when transferred to the mortgagee, charged?
Ans. As per the provision of section 24, when any property subject to a mortgage is transferred to the mortgagee, he shall be entitled to deduct from the duty payable on the transfer the amount of any duty already paid in respect of the mortgage.
Q. When can one ask for refund of stamp duty?
Ans. As per the provisions of sections 49, 50, 52, 53 and 54, Stamp Duty can be refunded under the following circumstances:
1. Spoiled Stamps;
2. Misused Stamps;
3. Stamps used in excess of the value required; and
4. Stamps not required for use.
Q. How is stamp duty paid in transactions where more than one instrument is required?
Ans. As per section 4 of the Indian Stamp Act, 1899, stamp duty is paid only on one of the principal instruments and on the balance documents only minimum duty is payable.
Q. Can stamp duty be paid in India, for documents executed outside India?
Ans. As per section 18 of the Indian Stamp Act, 1899, any instrument executed out of India can be stamped in India, provided it is stamped within 3 months from the date it has been first received in India.
Q. Stamp Duty is paid on ad valorem basis. What does this implies?
Ans. It means that — Stamp Duty is paid on basis of value of property.
Q. How stamp duty payable can be determined?
Ans. Usually, the executor himself can calculate the stamp duty payable on document as per the rates provided in the Indian Stamp Act, 1899 or the State Stamp Act, as the case may be. Under section 31 of the Indian Stamp Act, 1899, the executor can also apply to the Collector of Stamps after payment of the requisite fee, for the purpose of obtaining the opinion of the Collector of Stamps as to the amount of stamp duty chargeable on the instrument.
Q. How stamp duty on transfer of shares of a company is computed?
Ans. Stamp duty is payable under the Indian Stamp Act, 1899 on transfer of shares of an Indian company. If the shares are transferred under the depository mechanism, no stamp duty is payable on such transfer of shares. The stamp duty on transfer of shares as per Article 62 of the Indian Stamp Act, 1899 is 0.2 5% of the value of the transfer.
Q. Is a WILL made by an individual chargeable to stamp duty?
Ans. No stamp duty is payable on an instrument of WILL whether subject to the Indian Stamp Act or any state laws.
Q. Is there any stamp duty on merger, de-merger, hive off, slump sale of a business by an Indian company?
Ans. The Indian Stamp Act, 1899 do not specifically provide for any specific entry in Schedule I with regard to merger, de-merger, hive off, slump sale of a business by an Indian company. However, this does not mean that no stamp duty is payable on instruments which are used to implement such transactions. The issue is subject to several litigation and the revenue authorities take different views in different cases.
In states like Maharashtra and Gujarat, the matter is resolved to some extent by providing specific entries for levying stamp duty on merger and de-merger which are implemented under the Companies Act, 1956.
Q. Is there any penalty for violation of Stamp laws?
Ans. Yes. The penal provision includes imprisonment and fine or both for offences under the Stamp Laws.
Q. What are the consequences of nonpayment of stamp duty?
Ans. Every person having by law an authority to receive evidence and every person in charge of public office before whom any instrument chargeable, in his opinion, with duty, is produced or comes in performance in his function, shall, if it appears to him if such instrument is not duly stamped, impound the same.
No instrument chargeable with duty is admitted in evidence for any purpose or can be acted upon, registered or authenticated unless such instrument is duly stamped.
(B) BOMBAY STAMP ACT, 1958
Q. What are the Instruments liable to be stamped under the Bombay Stamp Act?
Ans. Instrument includes every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt.
Q. Is stamp duty payable on the instrument or transaction?
Ans. It is payable on instruments and not on transactions. Stamp duty should be charged on the basis of the contents of the instrument only. If any information essential for working out stamp duty is missing in the instrument, valuation officer can call for the same. In respect of immovable property, information such as the Carpet or Built-up area of the flat, number of floors in the building, year of construction, name of Division/Village and C. S./C .T. S. number of plot of land on which property is situated must be mentioned in the agreement for quicker response.
Q. Is stamp duty payable on all instruments/documents relating to transfer of immovable property?
Ans. Except transfer by WILL (or by original nomination in a cooperative housing society) all transfer documents including agreements to sell, conveyance deed, gift deed, mortgage deed, exchange deed, deed of partition, power of attorneys, leave and licence agreement, agreement of tenancy, lease deeds, power of attorney to sell for consideration, etc. have to be properly stamped before registration.
Q. Is there a time frame within which the Stamp Paper must be used?
Ans. According to section 52B, a stamp paper should be used within six (6) months from the date of purchase. Any stamps not used within this period are invalid.
Q. Is a refund possible if the Agreement has not been signed and the parties have paid the Stamp Duty and the transaction is called off?
Ans. When a person has stamps in his possession which have been spoiled or rendered unfit or the person does not require to immediately use the said stamps, or the transaction is called off then such a person should deliver the above said stamps to the Collector of Stamps.
In this case, the person is required to make an application within six (6) months from the date of the purchase of stamps. Under section 52 of the Bombay Stamp Act, the person should also submit the affidavit mentioning the reasons for which the Stamps were purchased and the reasons why the refund application is being made.
Q. In whose name should the stamp paper be purchased? If it is purchased in the name of an Advocate, can the client exercise the document?
Ans. As per section 34 of the Bombay Stamp Act, 1958, the stamp papers should be in the name of one of the parties who have signed/who would be signing the instruments.
Q. How is Mumbai City bifurcated for stamp duty purpose?
Ans. Mumbai city is divided as follows:
1) Mumbai City District: Mumbai City District is from Colaba to Mahim/Sion and consists of 19 Revenue Divisions;
2) Mumbai Suburban District: Mumbai Suburb is from Bandra to Dahisar and from Kurla to Mulund and consists of Andheri Taluka, Borivli Taluka, each having approximately 35 revenue villages. Andheri Taluka is from Bandra to Andheri, Borivli Taluka is from Jogeshwari to Dahisar and Kurla Taluka is from Kurla to Mulund.
Q. How does one ascertain the right amount of stamp duty in respect of immovable property?
Ans. You can find out the market value of a property and the proper stamp duty amount on it from the Stamp Duty Ready Reckoner and Market Value of Flats in Mumbai, as follows:
If your property is situated in Mumbai City (i.e., from Colaba to Mahim/Sion) you should know the Division name and C. S. No. (Cadestral Survey No.) of your property and if your property is situated in Mumbai Suburb (i.e., from Bandra to Dahisar and from Kurla to Mulund) you should know the Village name and C.T.S. No. (Chain and Triangulation Survey No.) of your property. This information is available from property card of the land on which your property is situated and a copy of property card is generally available from your society office or from original builder’s agreement.
Q. Is there a penalty for not paying the requisite stamp duty?
Ans. Section 34 of the Bombay Stamp Act, 1958, provides a penalty of 2% per month of the deficient portion of the stamp duty for every month or part thereof, from the date of execution of the instrument, subject to a maximum of 2 times the deficient portion of duty.
Q. In case of resale of the flat, who is required to pay the stamp duty the purchaser or the seller?
Ans. The parties can decide who shall pay the Stamp Duty. As per section 30 of the Bombay Stamp Act, 1958, if nothing is mentioned in the agreement and if the transaction relates to resale of flats then the stamp duty will have to be paid by the purchaser.
Q. What is the Stamp duty on units or premises of Information Technology or Information Technology enabled services?
Ans. These units or premises are exempted to certain extent from stamp duty for the period commencing from the 4th June, 2003 to 31st May, 2008. (Notification No. Mudrank 2003/2093/C.R. -462/M-1, dated 29th December, 2003)
Q. When is stamp duty payable on an instrument in Maharashtra?
Ans. All instruments are liable to be stamped before or at the time of execution of instrument or immediately thereafter on the next working day following the date of execution, when executed in the State of Maharashtra.
Further, according to section 18 of the Bombay Stamp Act, any instrument executed outside the State is liable to duty within three (3) months from the date of receipt of such instrument in the State, provided it relates to a property situated in the State, or a matter or thing to be done in the State.
Q. What is Adjudication?
Ans. Adjudication is process by which an opinion of Collector is obtained as to the duty, if any, with which or the Article under which that instrument is chargeable.
Q. Is there a procedure for adjudication of stamp duty?
Ans. For the purpose of adjudication, the person who is a party to the instrument has to furnish a true copy of the instrument or an abstract and an affidavit stating the facts and such other evidences as required, along with prescribed fee.
Q. Is the chargeability of stamp duty determined by the Collector of Stamps in adjudication final? Can a person go in appeal against the order passed by the Collector of Stamps. Is there any time limit for filing the appeal?
Ans: The chargeability of stamp duty on the instrument as determined by the Collector of Stamps is not final. The person affected by the order of the Collector of Stamps can go in appeal to the Chief Controlling Revenue Authority as provided in section 53 of the Bombay Stamp Act, 1958. Though there is no time limit prescribed for the filing of appeal, it will be desirable to file the appeal at the earliest to avoid complications.