Real Estate Tips

Stamp & Registration

Several question keep arising regarding the requirement to pa stamp duty and also regarding the requirement of registration of documents.

While documents are stamped as per the requirement of the Bombay Stamp Act, 1958, which is a state legislation, and hence the revenue goes to the State of Maharashtra, the Registration Act 1908 is a Central Act and the revenue goes to the Centre.

A conveyance or sale deed is the primary mode of transfer. An agreement leading to a conveyance required to be stamped with a duty of only Rs. 5.00 till the 10th of December, 1985. Then there was a drastic change. Agreements for sale of properties wherein possession WHEREAS contemplated required to be stamped as a conveyance. In other words, the full stamp duty became due and payable immediately, in spite of no real transfer. Since then, that is the accepted nor.
However the link, for stamp duty purposes, is contemplation of possession. Explanation No. 1 to Article 25 of the First Schedule to the Bombay Stamp Act reads as follows, “for the purposes of this article,  where in the case of agreement to sell an immovable property, the possession of any immovable property is transferred or agreed to be transferred to the Purchaser before the execution, or at the time of execution or after the execution of such agreement then such agreement to sell shall be deemed to be a conveyance and stamp duty thereon shall be livable accordingl”. Thus it can be argued that if an agreement states that possession shall be handed over immediately after the execution of the final conveyance on proper stamp, it may be possible to stamp the agreement at a modest Rs. 100 only. Reference is made to the precedent laid down in 2006(5) MLJ 306. It is however to be noted that the said explanation had been modified from time to time and this modification stated above is after the last one of 1994, which, as it stands was retrospective in nature and was deemed to come into effect from 10th December 1985 itself. The words “or agreed to be transferred” in the said explanation came into force w.e.f. 1st May, 1993.

Once however the agreement is stamped, additional stamp duty on the final conveyance may not be payable, and the first conveyance would be possible to be concluded on Rs. 100.00 only. However, if the agreement is not registered, or not adjudicated, then, to avail of the benefit of the stamp duty paid, the same requires to be submitted to the JDR for verification of the stamp duty paid on the agreement, and as to whether it is properly paid.

Stamp on a conveyance is to be paid on the market value of the property being transferred. The market value of a property is the value based on the consideration agreed upon or the value prescribed by the state, whichever is higher. The state has a detailed value chart prescribed, which is available for scrutiny at all the Sub Registrars offices on payment of a token fee.

However, these valuations are based on a basic thumb rule. Several aspects affect the value of a property. For example, there could be squatters on the land. The property could be under litigation, it may be located next to a slaughter house. There may be no access etc. Also values of neighboring flats may be different. One may have broken mosaic tiles, cracked walls, and basically may not be looked after wile the neighboring flat may be fitted with Italian marble; bathtubs etc. there would thus be an obvious difference in price and the purchase of the former.

In all such cases where one finds that the rate fixed by the Sub Registrar is high, if not exorbitant, the document can be furnished to the Joint District Registrar of stamps for adjudication as to the proper valuation. Once they value the property, the same would supersede the ready reckoner. Not only would less stamp and registration become payable, but the vendor would also get the benefits under he Income Tax Act also.

Certain discounts are available for payment of stamp duty when it comes to flats or residential plots in a society or to residential property in a condominium or to which he Memorandum of Understanding act applies. While the blanket stamp duty payable in respect of properties in the cantonment or corporation limits is 5%, in the above cases stamp duty on the first 500 000.00 is only Rs.7600.00 and only thereafter the normal rate applies. In fact even in the said 500 000.00, if the market value is less than 100 000.00, the total stamp is exempt and if the value is up to 250000.00 only1/2 %stamp is payable. However, with the prices that they are today, one hardly ever comes across flats valued at less than Rs.500 000.00.

Residential premises out of the PMC/Cantonment limits require to be stamped with only 2%, while non-residential premises require stamp of 4%.
Also certain benefits are prescribed when it comes to properties which are occupied by tenants. Such an encumbrance creates a blur on actual physical possession itself, which, finally is the benefit of the property. The value of such a property is based on "n" times the monthly rent.

For a transfer of any immovable property exceeding Rs.100.00, registration is compulsory. An agreement however is exempt from compulsory registration. In the event however of possession being handed over, the benefits of part performance may not be available to an unregistered agreement. It does not mean however that agreement requires being compulsory registered. When it comes to agreements under the Maharashtra Ownership Flats Act, 1963, i.e., agreements with builders, while registration is compulsory under the provision of section 4 of the MOFA, such document can still be admitted in evidence, even though not registered as in provided under section 4A of the said act. This being so, it is now a norm that such agreements be registered. In fact financial institute insist on registered documents. Thus, it is always better to take a practical decision of registration.

Stamp duty payable on license documents (residential) depends on the period of the license and the deposit and license fee payable. It is divided into various categories but for the sake of his article I will go into the two major categories. If the total period of license does no exceed 5 years, then one should take the yearly average license fee and all the deposit to it. If such total is less then Rs 250000.00, the stamp per year is Rs.500.00. If it is more than 250000.00but less than RS 500 000.00, the stamp per year is RS 1000.00 and if it exceeds Rs.500 000.00 the stamp per year is Rs.2000.00. If the period exceeds 5 years, the stamp payable is calculated on a percentage of the market value of the property, as, for the purpose of stamp duty, the concept is then based on a lease.
The Sub Registrars sometime insist on renaming such agreements a lease deeds. However that should not be done. In any event it is not something that the Sub Registrar should do. Always keep in mind if one blindly follows the dictates of an officer without applying his mind as to why a document is worded in a particular manner, one may land himself with a herculean legal problem.

When a flat or shop or office etc. purchased from a builder is sold within 3 years, the stamp paid on the original agreement can be set off on he later documents.
Under section 13 of the Act, documents are to be written in such a way that not only the front, but also the back of the sheet is to be used. Stamp papers require to be properly cancelled. However the Sub Registrars insist, and now it has become the norm, that documents are printed only on one side of the paper. I shudder to imagine the fall out if it is held that no such documents is duly stamped inviting complications, penalties, etc. under the Act. It is specified in Section 15 that if instruments are not written inter alia as per section 13 of the Act, they should be deemed not stamped.

Several benefits are made available under the stamp duty; one must take benefit of the same. On the other hand, if one avoids payment of stamp duty, and that too willfully, he could not only land up paying huge penalties, but may also get the unwanted benefit of being a guest of the state in a confined environment called a prison.