Opinion

All you wanted to know about stamp duty

Bavadharini KS | Updated on September 08, 2020 Published on September 07, 2020

In a minor relief to home buyers, Maharashtra has announced a reduction in the stamp duty rate on property purchases. It has lowered the stamp duty to 2 per cent (from 5 per cent) of the property value; this is applicable across Maharashtra from September 1 to December 31. This is expected to boost residential demand, and help developers bring down unsold inventories. Further, the stamp duty rate is kept at 3 per cent for January-March 2021.

 

What is it?

Stamp duty is the tax levied by the State government when a property is transferred from a seller to a buyer. Only when the receipt or acknowledgement of payment of stamp duty is received, will you be considered a legal owner of that property. In other words, payment of stamp duty acts as proof of ownership in court, in case of any dispute. So, you are considered the owner of a house property when your sale agreement is registered and signed, and the stamp duty and registration charges are paid.

A stamp duty is also applicable on conveyance deeds, sale deeds and power of attorney papers and this rate varies with each State (2-7 per cent). For instance, the stamp duty in Maharashtra is currently around 2 per cent of the value of the property, while in Tamil Nadu, it is around 7 per cent. A stamp duty is a mandatory payment and usually has to be borne by the buyer.

Why is it important?

Stamp duty is payable irrespective of the type of property purchased — under-construction, new completed or re-sale. It is payable on the value of the property or on the circle rate (price of the property or land in a region, published and regulated by the State government), whichever is higher. Whether you are buying a completed or a re-sale property, the stamp duty is levied. But the manner in which it is levied may vary. For instance, in Tamil Nadu, in case of under-construction property, you will pay stamp duty (7 per cent) and registration charges (4 per cent) on the guideline value or the market value of the undivided share (land), whichever is higher.

And for the building value, you will pay stamp duty of 1 per cent and registration charges (1 per cent) on the cost of construction or the amount mentioned in the construction agreement, whichever is higher. In addition, a buyer has to pay GST (around 5 per cent or 1 per cent in case of affordable housing) in case of under-construction property.

Why should I care?

Given that stamp duty payment is over and above the cost of property, any change in the rates influences the property purchase decision of an individual. So, the Maharashtra move should bring down, to an extent, the total cost to be incurred by a buyer. You will still have to pay registration charges along with stamp duty. While in Maharashtra the registration charge is a flat ₹30,000, in States such as Tamil Nadu and Karnataka it is around 4 per cent and 1 per cent respectively on the value of the property.

So, stamp duty rate reduction is not a deciding factor for a purchase. Unless developers bring down property prices as well, especially in cities like Mumbai, home buyers may not be enthused to buy a property at a time when there are salary cuts and in some cases job losses too.

The stamp duty is one of the additional costs a home buyer has to incur beyond the actual purchase price of the property. For instance, if a house is costing ₹80 lakh, you will pay this price to the seller but you will still have to pay stamp duty and registration charges to the government and other costs such for maintenance to the society of flat/apartments.

The bottom line

Stamp duty reduction is a band aid but don’t expect it to work magic on property prices.

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Published on September 07, 2020
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