The Oxford Dictionary of Law defines “stamp duty” to mean a tax payable on certain legal documents specified by statute; the duty may be fixed or ad valorem.
What is stamp duty ? why should one pay Stamp Duty ?Stamp Duty is a tax, similar to sales tax [VAT] and income tax collected by the Government.
Stamp Duty is payable under Section 3 of the Bombay Stamp Act, 1958.
There are various types of documents as per Schedule-1 of The Bombay Stamp Act, 1958. Each document or instrument attracts different amounts of Stamp Duty.
Advantages of proper stamp duty payment
Stamp Duty is supposed to be paid in full and on time. In case of delay in payment of stamp duty, a penalty is levied by the Government. A stamp duty paid document is considered a proper and legal document and as such gets a legal value and can be admitted as evidence in a court of law.
Documents which are not properly stamped or on which complete stamp duty is not paid do not have the same legal value in a court of law.
What are the implications of delayed stamp duty payment ?
If stamp duty on any instrument is not paid on time, it attracts penalty at the rate of 2% per month on the deficit amount of the stamp duty. However, maximum penalty can be 200% of the deficit amount of the stamp duty. Minimum penalty for delay in payment of stamp duty is Rs. 100.
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The Constitution of India provides three lists, viz. the Union List, State List and Concurrent List. The Parliament has exclusive powers to make laws with respect to any of the matters enumerated in the Union List, the Legislature of any State has the power to make laws with respect to any of the matters enumerated in the State List and both the Parliament and the Legislature of the State have the power to make laws with respect to any of the matters enumerated in the Concurrent List.
The position can be stated in the form of a Chart as follows
| Union List Entry 91 | State List Entry 63 | Concurrent List Entry 44 |
| Rates of Stamp duty in respect of bill of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. | Rates of Stamp duty in respect of document other than those specified in the provisions of List-I with regard to rates of Stamp Duty | Stamp duties other than duties or fees collected by means of judicial stamps but not including rates of Stamp duty. |
The Constitution of India lays down the provisions for levying taxes. This includes tax in the form of stamps on instruments recording certain transactions. The Stamp Act is a fiscal statute dealing with tax on transactions.
Under the Constitution of India, the power to levy stamp duty is divided between the Union and the State.
The Parliament (Central Government) has the power to levy stamp duty on the instruments specified in Article 246 read with Schedule VII, List I, Entry 91 and the State Government has the power to levy stamp duty on instruments falling under Article 246 read with Schedule VII, List II, Entry 63.
The payment of proper stamp duty on instruments bestows legality on them.
Such instruments get evidentiary value and are admitted as evidence in Courts (Section 35 of the Indian Stamp Act, 1899 and Section 34 of the Bombay Stamp Act, 1958). A stamped document is considered more authentic and reliable than an unstamped document.
So basically it is a kind of tax that is levied on the transaction performed by means of a document or instrument as per the regulations of Indian Stamp Act, 1899. Like other taxes, such as the sales tax or the income tax, it goes to the government exchequer and is collected by the government of the state where the transaction is carried out. Moreover, the stamp duty rates vary with the states of the country and you will also find differences in registration charges for different kinds of transactions.
Stamp duty is paid on instruments, which are simply a document to create, transfer, limit, extend, extinguish or record a right or liability. Also known as a stamp paper, this document acquires legality once it is stamped properly after the payment of the requisite stamp duty charges and can now be produced in a Court of law as evidence.
Taxable transactions include:
- motor vehicle registration and transfer
- insurance policies
- leases and mortgages
- hire purchase agreements
- transfers of property (such as businesses, real estate or shares).
The Bombay Stamp Act, 1958 has been recently amended by the Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2011. One of the amendments is amendment of Article 5 of Schedule I of the Bombay Stamp Act, 1958, whereby the stamp duty on an agreement relating to transfer of tenancy of immovable property will be based on the market value of the premises from the date the amendment comes into force, except in case of residential premises admeasuring up to 27.88 sq. metres.
