Owning our own home is a dream for most of us. However, skyrocketing property prices across the country make buying a residential property difficult, especially early in life. Purchasing a house involves not only finding the right home, but also getting your home loan application approved. And during this entire procedure of ensuring we have enough finances, we often overlook the role played by stamp duty and registration charges, thereby, upsetting our financial planning. These charges often tend to vary from one municipal area to another depending on the applicable local rates. Let’s see what entails stamp duty and registration charges as well as how they work.
What is Stamp Duty?
Stamp duty is a tax levied on any kind of transaction that takes place and is documented. These may include a conveyance deed, sale deed, power of attorney etc. Technically speaking, it is a tax that is paid for acquiring any document or instrument that facilitates the creation, transfer, limiting, extending, extinguishing or recording any right or liability. Stamp duty came into existence after the passing of the Indian Stamp Act in 1899. After the stamp duty is paid, these documents or instruments become legally valid, and have evidentiary value in a court of law.
Calculating Stamp Duty
Stamp duty calculation is based on the value of the property. Each Indian state has its own criteria based on which it is calculated. It is generally paid on the basis of the circle rate that is determined by a state government. Stamp duty also varies on the basis of the kind of property i.e. residential or commercial, as well as for urban and rural areas.
There are three ways in which you can pay stamp duty for the new property you are about to own. You may consider payment through non-judicial stamp paper, e-stamping, or franking, that is you pay the duty through some franking agency or a bank that is authorized to accept such a payment. Franking does involve some extra charges based on the state you are purchasing the property in. The table below shows some of the stamp duty rates that are prevalent in key states across India.
Table1. The following table provides stamp duty information of leading States in India*
*The rates mentioned above are indicative and subject to periodic change.
The Registration Process
After having completed the payment of stamp duty, the document goes through a process of registration with the help of the Sub-Registrar of Assurances where the property is located. This procedure is defined in detail by the Indian Registration Act of 1908. This is done in order to record the proper execution of the document so that you get legal ownership of the newly acquired property.
The fee for property registration is payable over and above the stamp duty. The registration fee is applicable in case of properties that cost over Rs. 30,000. This fee is usually calculated at 1% of the agreement value or the market value, whichever is lower.
Registration of documents involves thorough scrutiny of the documents and is a detailed procedure. The following are some key documents required at the time of registration-
- Identification documents like Pan Card, Passport, Driving License, etc. of both the seller as well as the purchaser
- The original deed document along with two photocopies, which is submitted to the Sub-Registrar of Assurances.
- The proof of payment of the Stamp Duty.
- Payment details of the transaction
- The Khata certificate and receipt of taxes paid
After all of the above procedures and documentation is provided, you will be given a receipt with a unique serial number, which marks the successful completion of the registration process.
To conclude, a property purchase involves substantial investment on the part of the buyer, hence it is important to know the nitty-gritty of the purchase and registration procedure before you decide to complete the purchase. Therefore, doing due-diligence of the property and complying with all legal formalities is of utmost importance when making such a large investment.