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What is meant by Stamp Duty on Home Loan?

What-is-meant-by-Stamp-Duty-on-Home-Loan

Are you planning to take a home loan, but are confused about Stamp Duty? Read this blog to know its meaning, how it is calculated and more.

Stamp Duty Meaning

The Indian Stamp Act of 1899 brought about stamp duty. It is an indirect tax imposed by the government on all valid and authorised property transactions. As a result, Stamp Duty is a tax that serves as evidence of the sale or purchase of a property between two or more parties.

Simply speaking, stamp duty is a legitimate tax that is applied to any sale or purchase of property to legalise the ownership of the property. It includes taxes on documents such as power of attorney papers, conveyance deeds, and sale deeds. You can claim these documents once you have paid the stamp duty.

How is Stamp Duty Calculated?

Stamp duty on home loan agreements is based on the higher value between the Ready Reckoner Rate (RRR) and the value of the home specified in the agreement. Accordingly, RRR is the standard or minimum value of any immovable property i.e. home assessed and regulated by the state where the home is located. An RRR serves as a benchmark below which no property transactions i.e buying and selling of homes can take place in a particular area.

Generally, it is the minimum value that a buyer has to pay for the home and also the minimum price on which the government levies stamp duty and registration fees. If the actual cost of the home is higher than the RRR, the stamp duty and registration fee is calculated on the actual price of the asset and vice versa.

For example, if the ready reckoner rate is Rs 80 lakhs and the house's value is Rs 60 lakhs, stamp duty will be calculated on the reckoner rate of Rs 80 lakhs, which is higher. In contrast, if the ready reckoner rate is Rs 40 lakhs and the property's value is Rs 60 lakhs, stamp duty will be calculated on the actual price of the asset i.e 60 lakhs, which is higher.

In India, stamp duty rates vary from state to state. It should be noted that the housing loan stamp duty differs in each state depending on whether the home is located within a municipal corporation limit, a municipal council limit, or a gram panchayat limit.

Many factors are considered in determining the stamp duty percentage:

  • The stamp duty rate will depend on the status of the property - new or old.
  • Stamp duty charges are also determined by the location of the property. Stamp duty charges are determined by the jurisdiction under which the property falls, such as a city, rural area, metropolitan area, or suburban area.
  • Another factor that affects the rates is age and gender. In some states, senior citizens and women receive rebates and discounts on stamp duty rates.
  • The stamp duty rate is also influenced by the use of the property.

How can you pay Stamp Duty?

The following methods can be used by homebuyers to pay their stamp duty online or offline:

1. Physical Stamp Paper: This is the most common and error-free method of paying stamp duty. Stamp papers can be purchased from legitimate and authorised sellers. Further, the non-judicial stamp paper can be printed with elaborate terms and details of the agreement, or a blank piece of paper can be affixed, signed by the parties, to the agreement, symbolising the payment of stamp duty.

It is the most common method since the paper can be attached even after the agreement has been signed. Stamp duty is equal to the value of stamp papers. In cases with high stamp duty, multiple stamp papers will be required, causing inconvenience to customers. It is, also, a time-consuming, tedious method, and there is always this looming risk of fake or forged stamp documents.

2. Franking : Franking was introduced as an alternative to stamp papers to curb stamp paper forgeries and stem the humongous losses occurring from the same. The process of having documents stamped with a stamp is called franking. Whenever you pay stamp duty at an authorised bank or a franking agency, the bank/agency will stamp the document to certify that it has been paid. With a franking machine, a special adhesive stamp will be applied to the document. As a result, it is verified that stamp duty was paid, without having to deal with any forged documents.

3. E-Stamping : You can also pay the stamp duty amount online, through RTGS/NEFT, in some states. To complete the registration process, the stamp duty certificate is then downloaded, which contains details such as the date, stamp duty type, etc. The Stock Holding Corporation of India Limited (SHCIL) has been appointed as the agency for e-stamps across India. For stamp duty on property purchases, buyers can visit the SHCIL portal.

How to save on Stamp duty charges?

1. Registration in women's name : Some states provide reasonable stamp duty rebates to female property buyers. If you want to save on stamp duty, you can buy and register your new home in the name of any female family member. In March 2021, the State Government of Maharashtra offered a one percent rebate on stamp duty for homes transferred to a woman's name only. Women must pay 4% stamp duty, opposed to 5% for their male counterparts.

2. Low-end projects : Stamp duty charges are lower in housing projects that do not offer premium amenities. For example, in Uttar Pradesh, higher duty is charged if the housing society offers premium amenities. It would be beneficial to buy a home in a housing society with fewer amenities, unless one really needs them.

3. Rural areas : In states such as Haryana, homebuyers in urban areas face a higher duty than their rural counterparts. In the event that the property is primarily being purchased for residential purposes, purchasing a home in an area outside the municipal corporation's jurisdiction can save homebuyers substantial amounts of money. The real estate community has been pushing for stamp duty exemptions for affordable housing. This would mean huge savings for homebuyers in this segment.

4. Invest in projects that offer stamp duty waivers Many players in the market have offered to waive off stamp duty to boost sales, especially during these challenging times when cash-strapped developers are devising new and innovative ways to attract clients. This means the builder will pay the stamp duty on your behalf. It may be amazing to take advantage of such an opportunity, but be diligent and careful not to be billed indirectly by carefully reviewing the various aspects of the project.

Conclusion

It is important to be aware and cognizant of the fact that stamping and registration costs are not included in the mortgage agreement. Also, be mindful of the Ready Reckoner Rate and the actual value of the asset to arrive at the exact base amount on which stamp duty will be calculated, the percentage of which will depend on many factors, such as age, gender and location, and try to leverage these factors where possible.

Must Read : Stamp Duty and Franking Charges in India

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