Millions share the dream of purchasing a home in India. Given the high real estate prices in most parts of the country, a home purchase is now treated as one of the biggest financial achievements.
For most people, this dream is achieved with the help of a home loan. If you are eligible for a home loan, your lender might approve a loan of 70%-85% of the property value. The remaining 40%-20% needs to be arranged by you.

But apart from property cost, a buyer also needs to consider a host of additional expenses that accompany a property purchase. Two of the biggest of them are stamp duty and registration.
If you are planning to purchase a property anytime soon, you should try to know as much about them as possible. This will help you ensure that you have adequate funds to manage these additional expenses and fulfill your dream of purchasing a property.

What is Stamp Duty?

Stamp duty is a type of tax levied by the Indian government on certain legal documents, like sale deeds, gift deeds, conveyance deeds, and mortgage deeds. It was first introduced back in 1899 under the Indian Stamp Act.
With regards to a home purchase, the stamp duty helps establish the ownership moving from the seller to the buyer. In the court of law, this stamp duty will function as the ownership proof.

What is the Ready Reckoner Rate?

To understand how stamp duty is calculated, it is important first to know what the ready reckoner rate is. The ready reckoner rate is the minimum rate of the property fixed by the state government.
There are several factors, like market value, amenities, location, and type of property, that impact the ready reckoner rate.

How is the Stamp Duty Calculated?

The stamp duty ranges between 3% and 10% in all the different states of India. The calculation is done on the ready reckoner rate or the agreement value of the property, whichever is higher.
So, for instance, if the ready reckoner rate of a property is Rs. 50 lakhs, but the agreement value for the same is Rs. 60 lakhs, stamp duty calculation, will be based on Rs. 60 lakhs as it is higher than the ready reckoner rate.

Apart from this, several other factors are taken into consideration for calculating stamp duty charges. Some of the most important ones are-
  • Property status (new or old)
  • Property area (metropolitan, rural, suburban, etc.)
  • Property location (even within a state, the stamp duty and registration charges can vary between cities and locations)
  • Owner age (some states have discounts for senior citizens)
  • Owner gender (some states offer stamp duty concession to female owners)
  • Property usage (commercial or residential)
  • Property type (independent house or flat)
Here is a list of current stamp duty rates in some of the popular Indian states-
State Stamp Duty Rates
Maharashtra 6%
Kerala 8%
Punjab 6%
Rajasthan 5% (male) 4% (female)
Uttar Pradesh 7% (Rs. 10,000 concession for female)
Haryana 8% in urban areas and 6% in rural areas (male) 6% in urban areas and 4% in rural areas (female)
Goa 5% (property value above Rs. 1 crore) 4.5% (for Rs. 75 lakhs to Rs. 1 crore) 4% (for Rs. 50 lakhs to Rs. 75 lakhs) 3.5% (up to Rs. 50 lakhs)

How is the Stamp Duty Paid?

There are three different ways to pay stamp duty on property purchase-

1. Stamp Paper-

The most popular method for paying stamp duty is with the help of a stamp paper. All the details of the transaction are mentioned on a stamp paper, which is signed by the buyer and seller. Within four months, the property then needs to be registered on the buyer's name at a sub-registrar office.

2. Franking-

An agreement is printed on a plain paper, which is then submitted to any authorized bank. The bank then uses a franking machine for processing the document.

3. E-Stamp-

Some of the states now allow you to pay stamp duty charges online. Once the payment is successful, the stamp duty certificate can then be downloaded for property registration.

Can You Undervalue Property Price on Agreement to Reduce Stamp Duty Charges?

Undervaluing the property value on the legal documents for reducing stamp duty used to be a common practice in the past. But as a responsible citizen of the country, you should know that such practices are considered as tax evasion.
In case if you do not pay adequate stamp duty, the tax evasion could not only result in heavy penalties but even imprisonment. The penalty in most states ranges between 5% - 20% of the actual stamp duty.

Are There Legal Ways to Reduce Stamp Duty Charges?

Yes, there are a few legal ways that can help you reduce the stamp duty charges on property purchases. Some of them are-
  • As stated above, the stamp duty for female property buyers is lower as compared to male buyers in some states. The property can be registered in the name of the female family member to take advantage of this facility.
  • Stamp duty and registration charges up to Rs. 1.5 lakhs can be deducted from your taxable income under Section 80C of the IT Act.
  • If you are still looking for a property, check the stamp duty rates at different locations in your city. If possible, go for one with lower stamp duty.
  • Some of the developers bear the stamp duty charges on behalf of the buyers. But if you are selecting one such developer, make sure that you are not getting charged for the same indirectly.

What is the Property Registration?

Once you are done with the stamp duty part, the next step is registering the property on your name as per the rules outlined in The Registration Act of 1908. It is mandatory to register the property within four months from when the agreement was executed.

This registration is done at the sub-registrar office of the jurisdiction where you have purchased the property. Note that a property purchase is considered invalid unless it is registered.

Are There Any Charges for Property Registration?

Yes, the buyer is required to pay the property registration charges. The fee is 1% of either the market value of the property or the agreement value, whichever is higher. Also, just like stamp duty charges, the registration charges vary between states and cities.

Here is a list of registration charges in some of the top Indian cities-
Cities Property Registration Rates
Mumbai 1% of the market value or the agreement value of the property, or Rs. 30,000, whichever is lower
Bangalore 1% of the market value of the property
Delhi 1% of the market value of the sale deed
Chennai 1% of the market value of the property
Kolkata 1.1% if the market value of the property is above Rs. 25 lakhs and 1% for under Rs. 25 lakhs properties

How to Pay Property Registration Fee?

Just like stamp duty, you can pay property registration charges offline or online (in some states). For offline payment, you can visit the sub-registrar office and purchase impressed stamps or adhesive stamps worth the registration fee.

Payment can also be made through authorized banks via cheque or demand draft. Some of the states allow online registration fee payments through NEFT and RTGS. Once you have successfully paid the registration charges, you will receive a receipt for the same. This receipt will be required at the time of registering the property.

How to Register the Property?

To register a property on your name, you will be required to submit many documents at the sub-registrar office. Apart from the buyer, the seller and two witnesses are also required to be at the sub-registrar office for successful registration.

Some of the most important documents you will need are-
  • Original sale deed along with two photocopies of the deed
  • ID and address proof of buyer, seller, and witnesses
  • Two passport-size photos of buyer and seller
  • Stamp duty and registration charges payment proof
You can contact the sub-registrar office in your jurisdiction to know more about the other documents that might be required for property registration.

Example
Let us assume that Mr Sanjay is purchasing a 1,000 sq.ft flat in Mumbai. The ready reckoner rate of the property is Rs. 5,000/sq.ft.
The developer is also charging a floor rise of Rs. 25/Sq. Ft. and the house Mr Sanjay is interested in is on the 5th floor. So, the base price of the flat will be Rs. 5,125/Sq. Ft (ready reckoner rate + floor rise of Rs. 125 as the house is one the 5th floor). He also wants to purchase a parking space for his car, which costs an additional Rs. 2 lakhs.

So, the base price of the house will be equal:
The base price of the flat + car parking= Rs. 5,125 x 1,000 (area) + car parking =Rs. 51,25,000 + Rs. 2,00,000 =Rs. 5,325,000
If the registration fee is charged at 1% of the ready reckoner rate of the property, it will be Rs. 53,250.

If the stamp duty is charged at 6%, it will be Rs. 3,19,500.
So, the total cost of the flat for Mr Sanjay would be- Base price of the flat+ registration fee + stamp duty= Rs. 53,25,000 + Rs.53,250 + Rs. 3,19,500 = Rs. 56,97,750

Importance of Understanding Stamp Duty and Registration Charges Before Purchasing a Property

As you are about to make one of the biggest investments of your life, it is essential to thoroughly understand all the additional costs like stamp duty and registration charges in detail. Take every possible legal precaution to ensure that the whole process of taking the home loan and completing the purchase is hassle-free and convenient.

If this is the first time that you are about to purchase a property, only trust a reliable loan provider or property consultant to help you through the process.

Click here to visit our personalized online advisor that gives you the financial expertise you need.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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