Why Are Stamp Duty Rates Different In Every State?

Key Takeaways

• Stamp duty is a charge applied by state governments in India on specific legal transactions, with rates varying depending on the state and nature of the transaction. The Indian Stamp Act of 1899 provides a framework for stamp duty rates and types of transactions, but individual states also have their own stamp duty laws and rates that can vary widely.
• India's stamp duty rates have historically been driven by the government's need for revenue and the need to protect citizens’ interests.
• Stamp duty generates revenue for state governments and reduces the possibility of fraud and malpractices. On the other hand, Stamp duty can discourage property transactions due to its high cost and has the potential for evasion through under-reporting or undervaluation, leading to revenue loss and an unfair playing field.
• State governments have the freedom to classify objects and strengthen stamp duty laws, but there is a tendency towards revenue maximization without regard for citizens' hardships. A reasonable approach and bolstered machinery for tracing fraud cases can enable efficient revenue collection without causing undue hardship to citizens.

Introduction

In India, state governments apply a charge known as stamp duty on specific legal transactions including the acquisition of real estate, leasing agreements, and other contracts. The state and the kind of transaction might affect the stamp duty rates. 

The legal aspect of stamp duty rates in India can be quite complex, as stamp duty is governed by a variety of laws and regulations at the state level. The amount of stamp duty may be estimated by taking into account certain features of the property, such as its age, gender, location, intended use, number of floors, and kind of use.

The primary legislation governing stamp duty in India is the Indian Stamp Act, of 1899. This law provides a framework for stamp duty rates and the types of transactions that are subject to stamp duty. However, individual states have their own stamp duty laws and rates, which can vary widely depending on the state and the nature of the transaction.

Background

Stamp duty rates in India have a long history dating back to the British colonial era. The first stamp duty legislation in India was enacted in 1899, and it was modeled after the British Stamp legislation of 1891. The legislation was imposed on a range of transactions, including land transfers, mortgages, leases, and other legal papers, with the primary goal of generating income for the British government.

After India attained independence in 1947, stamp duty rates have changed throughout the years, with some jurisdictions charging greater rates than others.

The Ministry of Finance, Government of India, announced a new stamp duty collecting system named "Unified Stamp Duty" in 2020. Stamp duty rates were reduced in several states and union territories under this arrangement, and the collection procedure was made more streamlined and efficient.

They were frequently changed in the years before the unified stamp duty policy to increase income or discourage speculative investment. For example, the Maharashtra government raised stamp duty rates on real estate transactions by 1% in 2013, citing the need to produce cash for infrastructure programs. In general, India's history of stamp duty rates has been determined by the need to raise money for the government, as well as by the need to protect the interests of citizens.

Circle Rates

In India, circle rates and stamp duty are both used to regulate and govern property transactions. While circle rates also known as the "guidance value" or "ready reckoner rate” it is the minimum rate at which a property can be registered, stamp duty is a tax that is levied on property transactions.

During a property transaction, the stamp duty is calculated as a percentage of the sale value or the circle rate, whichever is higher. The stamp duty rates vary from state to state and depend on factors such as the location and type of property.

If the sale value of the property is higher than the circle rate, the stamp duty is calculated on the actual sale value. However, if the sale value is lower than the circle rate, then the stamp duty is calculated based on the circle rate.

In summary, circle rates are used to prevent undervaluation of property during transactions and stamp duty is a tax that is levied on property transactions. The two are interrelated, as the stamp duty is calculated based on either the sale value or the circle rate, whichever is higher.

Landmark Cases

a) Kalyani Stores v. State of Orissa (1966) was a landmark case in India that addressed the state government's authority to alter stamp duty rates under the Indian Stamp Act of 1899. In this instance, Kalyani Stores signed many documents that were subject to the Indian Stamp Act. The state of Orissa issued a notification adjusting the stamp duty rates for various papers. Kalyani Stores contested the notification's legality, claiming that the state government lacked the authority to change stamp duty rates.

The Supreme Court of India rejected Kalyani Stores' case, ruling that the Indian Stamp Act gave the state government the authority to alter stamp duty rates. The court also held that the state government must exercise this power reasonably and not arbitrarily. This decision has had significant implications for stamp duty laws in India, as it has established the framework for how stamp duty rates can be revised by state governments.

[ (1966) 18 STC 466]

b) Union of India v. H.S. Dhillon (1972) is a significant case in India's legal history regarding the state government's authority to levy stamp duty on documents. The Union of India challenged the Punjab and Haryana High Court's decision that the state government had the exclusive authority to levy stamp duty on a document executed within the state. 

The Supreme Court held that stamp duty was a subject covered under the Concurrent List of the Constitution, meaning both the central and state governments had the authority to impose stamp duty. However, the court clarified that the state government had the exclusive authority to levy stamp duty on a document executed within the state and that the central government could only impose stamp duty on a document executed in the course of its business or for its purposes.

[AIR 1972 SC 1061]

States and Stamp Duty

1) DELHI

The Registration Act of 1908 mandates the buyer of a property to pay stamp duty at the time of registration. In court, a buyer cannot show ownership of an asset unless the property is registered in his name. In the nation's capital, Delhi, homebuyers must pay stamp duty and registration costs at the time the property is registered. Stamp duty rates differ for males and women. Furthermore, the stamp duty rates in the NDMC and on property sales within the New Delhi Municipal Corporation (NDMC) region is 5.5%. The relevant stamp duty for female buyers in this area is 3.5% of the purchase price.

Stamp duty is 3% on property sales inside the Delhi Cantonment Board region.

2) KOLKATA

The West Bengal government had announced a temporary decrease in stamp duty rates (Schedule 1A of the Indian Stamp Act) in response to the COVID-19 outbreak. The government has lowered stamp duty by 2% till March 31, 2023. As a result, the current stamp duty rates in Kolkata are as follows:

• 4% in urban regions

• 3% in Panchayat districts

The property registration cost in Kolkata is determined at 1% of the property value.

 Property Registration Fees = 1% of the property's value

 Stamp tax rates for properties valued up to Rs 1 crore are lower than those for properties worth more than Rs 1 crore. In contrast to the majority of states, West Bengal does not provide a tax break if the property is registered in the name of a woman.

However, as of April 1st, the municipal stamp duty rate in Kolkata is 6% and the Panchayat rate is 5%.

3)TAMIL NADU

Tamil Nadu's government recently agreed to change the state's stamp duty and registration costs. The taxes are imposed in accordance with the Tamil Nadu Stamp Act, 2019, and the Indian Stamps Act, 1899, and are required in Tamil Nadu for all property transfers When the Tamil Nadu government published its annual budget for 2023-2024 on March 20, 2023, it decided to reduce registration costs to 2%. Sale deeds, gift deeds, exchange deeds, and a 5% stamp fee will all be legal beginning April 1, 2023. 

The decrease in stamp duty and filing fees would benefit its real estate industry. In Tamil Nadu, stamp duty is 7% of the property's market value. The registration charge is 4% of the market value. In Tamil Nadu, men and women must pay the same stamp duty and registration costs.

4) GUJARAT

The stamp tax in Gujarat has been reduced from 16% to 4.9% throughout the years (The Gujarat Stamp (Amendment) Act, 2018, Section 32A of the Gujarat Stamps Act, 1958). The basic rate of stamp duty in Gujarat is 3.50%, whereas the total rate is 4.90%. The registration cost in Gujarat is 1%. To determine it, the overall price of the property is examined, which includes the clubhouse, car park, energy deposit costs, and so on. Stamp duty is the same for both men and women in the state.

Stamp duty is based on the market value of a property, whereas registration fees are based on the cost of creating your title of the property and are often less than stamp duty.

Overall, The Indian Stamp Act of 1899 mandates the imposition, collection, and payment of stamp duty on specified papers. The profits of stamp duty levied in any fiscal year are allotted to the State in which they are collected, and each State Government has stipulated by law that stamps purchased in that State alone should be used for instruments performed in that State. Stamp duty is a state - subject, hence it varies from state to state. India's stamp duty rates have historically been driven by the government's need for revenue and the need to protect citizens interests.

PROs and CONs

Pros of Stamp Duty:

1. Revenue generation: Stamp duty is an important source of revenue for state governments. The revenue generated from stamp duty can be used for various developmental activities, such as infrastructure development, education, healthcare, and other public welfare programs.

2. Encourages transparency: Stamp duty is levied on legal documents, such as property agreements, share transfer certificates, and other instruments. This ensures that the transactions are recorded and documented, which encourages transparency and reduces the scope for fraud and malpractices.

Cons of Stamp Duty:

1. High cost for buyers: Stamp duty can be a significant cost for buyers, particularly in cases where the stamp duty rates are high. This can discourage some buyers from making property transactions, particularly in times of economic uncertainty or when the property market is sluggish.

2. Potential for evasion: There is a risk of stamp duty evasion, particularly in cases where the transaction value is under-reported or the property is undervalued. This can result in revenue loss for the government and an uneven playing field for honest taxpayers.

Conclusion

Previous decisions have shown that the administration of stamp duty is based on well-established precedents in law and that state governments shall have full freedom in classifying objects and strengthening stamp duty laws. Unfortunately, there is some 'tunnel vision' in state thinking, as their primary goal is to make more money. States can efficiently collect revenue without causing undue hardship to citizens by appreciating facts, adopting a degree of reasonableness, and bolstering the machinery for investigating and tracing the few cases of avoidance and fraud that have fallen through the gaps