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Legislations

On the Amendments made in the Indian Stamp Act, 1899

For far too long, the buyers and sellers of equities and other property, have been paying taxes twice more than what they should be paying. This article talks about the amendment in Indian Stamp Act that will bring a stop to it, and much more.

By: Shimoni Sinha, III year BA LLB student at ILS Law College 

What is Stamp Duty? 

Stamp Duty is the tax levied on the purchase or exchange of property or rights between two persons. It can be considered as a levy paid to register a document, typically an agreement or transaction paper, between two or more parties, with the registrar. Usually, it is a fixed amount depending on the nature of the document or is charged at a certain percentage of the agreement value stated in the document. This will be better elucidated through the medium of an example. Suppose a buyer A wants to purchase a house from seller B at the transaction value of Rs 1 crore. Post the purchase, the final step is the possession and registration of the property. 

Getting the property registered in ones’ name forms an essential part of the purchase because possession is merely the physical transfer of the property. Registration is the important legal evidence of property ownership.

Getting the property registered in ones’ name forms an essential part of the purchase because possession is merely the physical transfer of the property. Registration is the important legal evidence of property ownership. It is at the time of this registration that the buyer is required to pay a stamp duty which, as stated above, is a government tax levied on property transactions. Similar to property purchase, Stamp Duty is an essential tax that is also to be levied on Sale Deeds, Gift Deeds, Exchange Deeds, Lease Agreements, Partitions, Transfer Deeds, Mortgages, et al. 

How is Stamp Duty Calculated? 

Prior to the amendments made, Stamp Duty charges were not uniform across states.

Prior to the amendments made, Stamp Duty charges were not uniform across states.

During the purchase of property, for instance, sale deeds were charged at around 4-10% of the value of property and registration charges were uniform at 1% of Property Value. The Property Value could be decided either on the basis of Guideline Value or on the basis of Actual Market Value. Guideline Value (also called Circle Rate or Guidance Value) is the minimum rate for payment of Stamp Duty. The charges can not be lower than this value. This rate is affixed by the State Government. Actual Market Value is the actual price at which the property was bought/exchanged. Whichever of the two rates is higher, is to be used for the calculation of the Stamp Duty. 

How are Stamp Duties regulated in the country? 

Stamp Duties are regulated through the Indian Stamp Act, 1899. This Act that was consolidated to form and amend laws related to Stamps. The sole purpose of the Act was to generate revenue for the Government and to make the payment of stamp duty on some documents compulsory, which in turn, makes those documents legally valid and authentic.

Why did the Act need changes and what are the major changes brought about by the amendments?

The Act, as it was prior to the Amendment, led to an erratic trend in regional development as the rates of property and equities were not uniform.

The Act, as it was prior to the Amendment, led to an erratic trend in regional development as the rates of property and equities were not uniform.

It also gave some States a de trop disadvantage in comparison to others. For example, states like Haryana, Andhra Pradesh, Odisha and Telangana had low rates of Stamp Duties. In Uttar Pradesh, there was a setup of a minimum daily cap of Duty that could be paid per day. This meant that regardless of what one earned through equities, they wouldn’t have to pay more than a fixed amount of Duty per day. This was an inconvenience to traders in states like Goa, Tamil Nadu and Daman & Diu as they had to pay higher rates of Duty. The following are the changes that have been brought about due to the Amendment:

  1. The stamp-duties that were earlier collected by the State Governments will now be collected through agents of the Central Government. It will be from here that the duties will be distributed among the State Governments.
  2. In the extant scenario, stamp duty was payable by both seller and buyer. This led to multiple incidences of taxation which led to miscalculation of capital formation. Now, however, the charges will only have to be paid by the buyer on delivery. For example, the amended rate of Stamp Duty on delivery of equities is 0.015%. 
  3. Within three weeks of collection of the duties, the collecting agents are to transfer the collected revenue to the respective State Government of the buyer. 
  4. In order to promote equity trading, the rates of Duties have gone down in many segments. 

Was the market equipped to face this change?

The amendments to the Stamp Act and the rates have been in public domain since February 2019 (when Finance Act, 2019 was notified) and the market had enough time to prepare for this. In fact, the changes were to come into force on 9th January 2020 but had to be delayed due to the Covid-19 situation. This was done keeping in consideration the requests received from stakeholders as the country-wide lockdown situation had wreaked havoc in the market. 

Conclusion

In conclusion, the Amendments have been a welcome altercation in the market as it has brought about uniformity in the market and has helped reduce the tax burden since rates are to be charged only on one side of the transaction.

In conclusion, the Amendments have been a welcome alteration in the market as it has brought about uniformity in the market and has helped reduce the tax burden since rates are to be charged only on one side of the transaction.

The changed mechanism is expected to minimize costs of collection and enhance revenue generation. Further, this system will help develop stock trading markets across the country and bring about uniformity in development in all urban regions. 

References taken from: Implementation of Amendments in the Indian Stamp Act, 1899 and Rules made from 1st July, 2020 for Rationalized Collection Mechanism of Stamp Duty across India with respect to Securities Market Instruments by the Ministry of Finance, India available at https://pib.gov.in/PressReleseDetailm.aspx?PRID=1635399

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