What is the Maharashtra stamp duty on rental agreements, and what are the laws that regulate the registration of such documents?

We’ll explain why.

The acquisition of a home isn’t the only component of ownership that necessitates a lot of paperwork. Landlords and tenants must both participate in paperwork in order for rental agreements to be legally enforceable. To accomplish this process, the agreements for leave and license must be stamped and registered, and a stamp tax must be paid.

Because stamp duty is a state affair, each state has its own stamp duty rates and laws. In this article, we’ll look at the law in Maharashtra that governs stamp duty and the registration of leave and license transactions.

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What is the definition of stamp duty?

The parties to a transaction must pay stamp duty to government authorities (which might be civic or development authorities) in order for the document to be recorded in the government’s records. They must also pay a registration fee in addition to the stamp duty.

Provisions for stamp duties

The Indian Stamp Act of 1899 establishes the basic structure for stamp duty, allowing governments to change it according to their needs. As a result, Maharashtra’s government passed the Bombay Stamp Act in 1958. Article 36A of the Bombay Stamp Act, 1958, governs the payment of stamp duty on leave and license agreements.

What is the difference between leave and a license agreement?

The Indian Easements Act of 1882 outlines leaves and license agreements under Section 52. “Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the grantor’s immovable property, something that would be unlawful if such right did not exist, and such right does not amount to an easement or an interest in the property, the right is called a license,” according to this section.

Leave and license agreements must be stamped in Maharashtra, with a stamp tax cost of 0.25 percent of the entire rent for the duration. If the landlord additionally receives a non-refundable deposit, stamp duty at the same rate will be applied on the non-refundable deposit.

People used to pay a considerable sum as an interest-free deposit, together with minimal rent, to minimise the incidence of stamp duty. This loophole has been filled, and now, in circumstances where the landlord collects a refundable deposit, a notional annual interest rate of 10% is applied to such interest-free deposit, and you must pay stamp duty at the same rate on such interest for each year of the license agreement’s duration.

The stamp duty rate for leave and license agreements is the same for both residential and commercial properties. The leave and license agreement can be completed for a maximum of 60 months.

Stamp duty payable on a rental agreement

• Monthly rental x No of months = A
• Advance rent for the period/non-refundable deposit = B
• 10% x Refundable deposit x No of years of the agreement = C
• Total amount subject to stamp duty = D = A+B+C
• Stamp duty = E = 0.25% x D

For example, if you sign a 24-month leave and license agreement with a monthly rent of Rs 25,000 and a refundable deposit of Rs five lakhs, you’ll have to pay Rs 1,750 in stamp duty (being 0.25 percent on rent of Rs six lakhs for two years and interest of Rs one lakh for two years).

Provisions for rental agreement registration

Every agreement for leases of immovable property from year to year, or for any term beyond one year, is required to be registered mandatorily under Section 17 of the Indian Registration Act, which applies across India. Each and every leave and license agreement for a duration of 12 months or longer must be registered unless state laws permit otherwise.

However, in Maharashtra, the law has been made more rigorous, and under Section 55 of the Maharashtra Rent Control Act, 1999, every tenancy or leave and license agreement must be in writing and must be mandatory registered, regardless of the length of the lease.

The landlord is responsible for ensuring that the rental agreement is registered; if this is not done, the landlord may be fined Rs 5,000 and sentenced to up to three months in prison.

If the agreement for leave and license is not recorded and a dispute arises between the landlord and the tenant, the terms and conditions of the agreement as contended by the tenant shall be deemed to be the true and correct conditions under which the immovable property was rented, unless otherwise proven.

The cost of registering a tenancy agreement in Maharashtra is determined by the location of the property being rented. If the property is in a municipal corporation area, the registration cost is Rs 1,000; if it is in a rural region, the charge is Rs 500. In the absence of a written agreement to the contrary, the renter is responsible for stamp duty and registration.

and the witnesses, such as a passport-size photograph, a photocopy of identification evidence (e.g., PAN card), an electricity bill, or a property document such as Index II or the tax receipt of the property being rented out. You’ll need some basic documentation from the renter and the landlord to register the agreement.

States may soon begin implementing the requirements of the Model Tenancy Act 2019, as the center intends to give the policy a more binding status by turning it into law. The draft has been made public, and comments on the policy are being accepted until October 31, 2020. After this time period, the model policy may serve as a blueprint for states to develop their own tenancy legislation. If this happens, Maharashtra’s rental market would be drastically altered. In reality, the change will allow a big number of units in the rental housing market to become available.

On November 25, 2020, Durga Shanker Mishra, secretary, Ministry of Housing and Urban Affairs, stated that if implemented across states, the new Act will free over one crore unoccupied dwellings held captive by the previous Act and encourage real estate investment.

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Tenants and landlords should be cautious.

While the state has made online payment for many services more convenient, all parties engaged in a transaction must ensure that they do not use unauthorized third parties to complete digital transactions. Complete the online transaction with the assistance of a trusted family member or friend, or with the assistance of your attorney or financial counselor.

Most crucially, getting into tenancies without first providing the arrangement’s legal validity by signing a lease agreement is a terrible idea, especially given the number of cases of wrongdoing in Mumbai’s rental real estate market.

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