6 Legal Ways To Avoid Stamp Duty On Property Purchases
Legal Ways To Avoid Stamp Duty- In India, there are techniques to legally reduce stamp duty while buying real estate. When registering a property in India, stamp duty is required to be paid by the buyer. Stamp duty adds a large amount to the upfront costs of purchasing a home, typically ranging from 3 to 8% of the transaction value (actual amounts vary depending on the state).
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What is the stamp duty?
States in India impose a levy on real estate transactions known as stamp duty. At the time of property registration, the buyer is required to pay this tax to the state government via the sub-registrar’s office. In addition to stamp duty, there is another tax that needs to be paid—the registration fee—in place of the paperwork. Rates vary from state to state because each state is in charge of imposing this tax.
Stamp duty in several states of India by 2024
| States | Stamp duty (as percentage of transaction value) |
| Arunachal Pradesh | 6% |
| Assam | 6% |
| Andhra Pradesh | 5% |
| Bihar | 6% |
| Chhattisgarh | 5% |
| Gujarat | 4.90% |
| Goa | 3-6%, based on transaction value |
| Himachal Pradesh | 6% |
| Haryana | 5-7% depending on area |
| Jharkhand | 4% |
| Karnataka | 3-5%, based on transaction value |
| Kerala | 7% |
| Maharashtra | 3-6% based on transaction value |
| Madhya Pradesh | 8% |
| Mizoram | 5% |
| Manipur | 4% |
| Meghalaya | 9.90% |
| Nagaland | 8.25% |
| Odisha | 5% |
| Punjab | 7% |
| Rajasthan | 6% |
| Sikkim | 5% |
| Tripura | 5% |
| Tamil Nadu | 7% |
| Telangana | 4% |
| Uttar Pradesh | 7% |
| Uttarakhand | 5% |
| Delhi | 6% |
| West Bengal | 3-5% based on property value |
Legal Ways To Avoid Stamp Duty payments
The Indian Stamps Act and the Registration Law of 1905 require the registration of property papers, including gift, title, and transfer deeds. In addition to being a legal requirement, paying stamp duty is essential to avoiding fines. If stamp duty is evaded, there is a penalty under the law of up to 10% of the liability. In the event of a future dispute, unstamped property documents will likewise not be admissible as evidence in court. There are safe and legal ways to reduce stamp tax on Indian real estate acquisitions, even though it is not an option to refuse to pay the stamp duty.
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1.Register a selling deed in a woman’s name
With a few notable exceptions, almost every Indian state provides female homebuyers with discounts. For example, women buyers in Delhi, the nation’s capital, only had to pay 4% stamp duty, compared to 6% for men. To take advantage of this benefit, you can think about registering the property under the name of a female occupant.
Even though the reduction might be smaller in this scenario, it is still possible to take advantage of this discount if the property is co-registered in a woman’s name.
Caution
Purchasing a property is an extremely complicated and personal process. Select this option only if you don’t anticipate any future legal issues about title ownership and abuse.
2.Pay stamp duty using the guidance value or circle rate
The government-set figure below which you are unable to register your property is known as the “circle rate.” This is the standard by which the stamp duty is determined. You might think about registering your property based on its circular rate value because it could occasionally be less than the market rate.
Let’s say you paid Rs 1 crore for your home because the local market rate is higher than the government-mandated circle rate. The cost of the property comes to just Rs 80 lakh when calculated using the circle rate value. As a result, registering the property on circular rate value is safe legally. If this were a home in Delhi, the stamp duty that a woman buyer would have to pay would be Rs 3.20 lakh (4% of the property value). She would be required to pay Rs 4 lakh if she were to register the property at the Rs 1 crore purchase value.
Caution
Lowering the value of your property on paper is another consequence of registering it on a circle rate. This implies that you might not be able to demand, let’s say, Rs 1.20 crore for a home that was registered for Rs 80 lakh a few years ago if you decide to sell it in the future. Additionally, applying capital gains tax at a higher rate would result from doing this.
3.Request for determination of market rate
There are situations when the property’s market value is less than its circular rate. Nevertheless, you might have to pay more stamp duty for a property that is worth less because the law only requires you to pay stamp duty on circle rates. There is, nevertheless, a way out of this situation.
If the market value of a property is less than circle rates, buyers are free to file an appeal with the sub-registrar to examine circle rates under Section 47 of the Indian Stamps Act.
According to Section 47, “When any promissory note or bill of exchange that is chargeable is presented for payment without a stamp, the person to whom it is so presented (sub-registrar) may attach the required adhesive stamp to it and, after cancelling it as previously provided, may pay the amount payable upon such bill [or note] and may charge the duty against the person who ought to have paid the same or deduct it from the sum payable, as aforesaid, and such bill [or note] shall, as far as respects the duty, be deemed good and valid.”
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Caution
The property will remain unregistered until you file an appeal. Should the sub-registrar remain unconvinced, you might also have to pay the previous stamp duty.
4.Property under construction should be registered at a lower undivided share
for purchasing an under-construction home, the buyer’s undivided part of the land on which the structure is located and the construction cost are taken into account for calculating stamp duty.
For example, purchasers of under-construction real estate in Tamil Nadu and Karnataka pay the stamp duty in two installments. First, the buyer’s name is registered on the property under his undivided share (UDS). Therefore, lesser stamp duty would result from a lower UDS. After the project is finished, the property is reregistered, which results in the stamp duty being calculated on the total value of the property.
Caution
If you were to sell this home, doing so would come with a financial burden. Your property may be permanently depreciating as a result of you.
5.Use state-specific rebates
In order to make future purchases, a buyer does extensive study. Because there are state-specific benefits that can be taken advantage of at the time of property registration, it could be a good idea to study the local stamp duty law.
For example, in Uttar Pradesh, the stamp duty on a property transfer involving a family is limited to Rs 7,000 (Rs 6,000 for stamp duty plus Rs 1,000 for processing expenses). Within-family property transactions in Maharashtra are subject to a stamp duty of just Rs 200, despite the government’s ongoing review of this provision to enhance revenue collection.
Caution
Usually, these regulations focus more on gifts and wills than on actual transactions.
6.Benefit from tax advantages on stamp duty
Savings are available when your income tax due is discharged. A buyer purchasing real estate may deduct up to Rs 1.50 lakh from the stamp duty and registration price under Section 80C of the Income Tax Act. If there are joint owners, each can deduct the amount according to his or her portion of the property.
Caution
This deduction can only be claimed by individuals or HUFs. Only the year that the stamp duty & registration fees were paid may be used to deduct this amount. For instance, you can deduct the cost of the property in FY2023 (April 2022 to March 2023) if you purchased and registered it on October 20, 2022.
Legal perspective
Legal experts believe that undervaluing a property at the time of registration is never acceptable, even if it’s just to save stamp duty costs. They claim that this might have significant financial and legal repercussions.
First of all, it will be quite difficult to find a buyer who is willing to pay the appropriate value for your home if you choose to sell an undervalued one. Even if it all works out, you, the seller, will ultimately have to pay a large amount of taxes on capital gains.
The seller would benefit by Rs 70 lakh if a property valued at Rs 1 crore was registered at Rs 80 lakh in 2005 and sold for Rs 1.5 crore in 2010. However, taxes would need to be paid on 20% of this sum, or Rs 14 lakh. The owner will pay Rs 10 lakh, or 20% of Rs 50 lakh, in long-term capital gains if the property was not initially undervalued.
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