What is Stamp paper, Stamp Duty?
“Why do I have to pay stamp duty ?” asked my friend. He had just got an e-Stamp paper from his CA for representing him in a Income tax scrutiny case. Let’s explore about what is stamp paper, what is stamp duty, who pays it,how much to pay,what was Telgi Stamp Paper Scam
Why do you need stamping?
Certain transactions such as buying, selling or leasing property, power of attorney, business agreements need to be documented, especially those that has a financial aspect to it. But even if you write the agreement details on paper, and have signed how do you ensure that other party (or relatives of other party) does not back out or comes back to claim that transaction did not take place. Many types of documents are only valid if printed on a specific value stamp paper (Rs. 10, Rs. 100, Rs. 500 and so on). The sale of these papers generates revenue for the government and acts as a kind of transaction tax. Paying stamp duty is an essential part of almost any transaction you do in India, from buying or selling a house to setting up a business agreement, all Agreements, Bonds, Powers of Attorney etc . Sample of a stamp paper is given below
What is stamp duty?
Stamp Duty is payable under Section 3 of the Indian Stamp Act, 1899. The levy of stamp duty is a state subject and thus the rates of stamp duty vary from state to state. The Centre levies stamp duty on specified instruments and also fixes the rates for these instruments. Rates of stamp duty payable for different types of documents.
The payment of proper stamp duty on a document creates its legality. Such document is admissible as evidence in a court of law. Documents that are not properly stamped, or are unstamped, are not admissible as evidence. Some of the Documents for which stamp duty must be paid Adoption Deed Affidavit Divorce Entry or memorandum of marriage. Gift Indemnity Bond Lease
Stamp duty is one of the major sources of revenue for every state. For the state of Maharashtra, stamp duty is the second largest source of revenue after sales tax.
It must be ensured that, in any event, stamp duty is purchased in the name of a person or company who is party to the document. If this does not happens, it will be treated as a document executed (signed) on unstamped paper. To get a refund for an unused stamp paper, you must file a claim within six months from the date of purchase of the stamp paper.
Terms associated with stamp and stamp duty
Instrument means any document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded.
Execution means putting signatures on the instruments by the person/persons executing the instruments.
How is stamp duty calculated?
Stamp duty is payable as per the rates provided in the Indian Stamp Act or the State Stamp Act and pay accordingly. First step to calculate the Stamp duty is to identify which category the document or instrument falls under. There are three categories of transaction for the purpose of stamp duty calculation:
- Under the first category, the stamp duty remains fixed no matter what value is mentioned in the document or instrument. Examples of such instruments are Administration Bond, Affidavit, Adoption Deed, Appointment in Execution of Power, Divorce, Apprenticeship Deed, Award, Article of Clerkship, Cancellation Deed, Duplicate, Charter Party, Copy of Extracts, Indemnity Bond, Power of Attorney, etc.
- Under the second category, Stamp duty charges are dependent upon the value mentioned in the document. Such documents are Mortgage Deed, Lease Agreement, Title Deeds, Security Bond, Hypothecation Deed, Article of Association, etc.
- Under the third category, the Stamp duty depend either on the value mentioned in the document or on the true market value, whichever is higher. Instruments like Conveyance, Agreement for sale, Gift exchange, Partnership Deed, Development Agreement, Transfer of Immovable Property, Trust Deed, Partition, and so on.
Who pays stamp duty?
In the absence of any agreement to the contrary, the purchaser/transferee has to pay stamp duty or in case of exchange of properties, both parties have to bear stamp duty equally.
How to pay stamp duty?
There are three ways to pay stamp duty. However, not all states have all three options available. If all methods are available, all are recognised legally and the choice is with the individual(s) concerned. These options are discussed in detail in our article Stamp Paper,Franking and e Stamping.
- Using papers bearing impressed stamps (non-judicial stamp paper)
- Using the e-stamping facility
- Using a franking machine
Difference between Stamping, Notarising and Registering a document
Paying Tax by means of stamp papers, notarisation and registration are three different things. For example : Possession is the physical transfer of the property, but it is not sufficient. You also need to have legal evidence of ownership. For this you will have to get the property registered in your name in the local municipal records, with the seller documenting that the property is being transferred to you. At the time of registration, you will also have to pay a stamp duty which is a government tax levied on property transactions. A person is considered the lawful owner of a property/vehicle only after he gets it registered in his name. Stamp duty is collected on the basis of property value at the time of registration. Stamp duty’s amount varies from state to state and also property type—old or new.
- Notarisation is the act of a notary public authenticating by his signature and official seal, certifying the due execution in his presence of a deed, contract or other writing, or verifying some fact or thing about which the notary public has definite knowledge. In India notarisation is performed under Notaries Act, 1952.Documents are notarized to certify their genuineness and prevent fraud and to make sure they are properly executed. The Notary is considered as an impartial witness who verifies signers and ensures they have entered into agreements knowingly and willingly. In short, its objective is to determine everything is true and genuine on the document.
- Registration means recording of the contents of the document. Registration of document acts as notice to the general public. The object of registration is conservation of evidence and title. Section 17 of the Indian Registration Act 1908, deals with the documents that are compulsory to be registered. For more details read www.legalserviceindia.com/article/l408-Sec-17-of-Indian-Registration-Act,-1908.html
- Stamp duty is a legal tax payable in full and acts as an evidence for any financial transaction such as sale or purchase of a property.Stamp paper must be purchased in the state where the document is executed.
Telgi Stamp Paper Scam
Stamp paper scam or the Telgi scam involved printing duplicate stamp papers and selling them to banks and other institutions. Across 72 towns and 18 States over a period of 10 years, the counterfeit stamp paper scam dealt the Indian economy a Rs.32,000-crore(some say 172 crore) blow. Abdul Karim Telgi was the mastermind of the multi-crore counterfeiting. He printed fake stamp papers worth thousands of crores of rupees using printing machines purchased illegally with the help of some of officials of the Central Govt.’s Security Printing Press (India Security Press) located in Nasik. The fake stamp papers penetrated in more than 12 states through a widespread network of vendors. The scam broke in August 2000 when Bangalore police arrested 2 possessing fake stamp. The Special Investigation Team was assigned the probe job. On 17 January 2006, Telgi and several associates were sentenced to ten years’ rigorous imprisonment. On June 28, 2007 Telgi was sentenced to rigorous imprisonment for 13 years and fined a whopping Rs 202 crore. For more details,timeline one can read Stamp Paper Scam – a racket that flourished on loopholes in the system or Rediff’s in.rediff.com/news/telgi.html
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Hope this helped you to understand What is stamp paper, What is stamp duty?About the Stamp paper scam masterminded by Telgi, legality of the document.