What Do You Mean By Stamp Duty?
Stamp duty is a tax paid to the government upon the conversion of an agreement into the instrument of a contract. In simple terms, it may be said an instrument is a written document that expresses a legal right. The term ‘instrument’ has been defined under Indian Stamp Act, 1899 as "any document by which any right or liability is, or may be, acquired, transferred, limited, extended, extinguished or recorded".
Stamp duty is levied on the instrument in accordance with the rates prescribed by the State government . As per Indian Stamp Act, 1899, Stamp Duty is levied on instruments inter alia related to sale, mortgage, gift, exchange, settlement, release, partition, power of attorney, letter of credit, positive and negative declarations, bills of exchange and cheques, endowment policy, transport, lease, agreements and memorandum of understanding, trust deeds, will, codicil or any other testamentary instrument, grant of probate, letters of administration, letter of administration with a will, transfer of shares, annuity, surrender of annuity, marriage agreement, mural painting, metes and bounds, instruments related to consignment of goods at sea and goods inwards and outwards and share warrant.
Unlike most of the other legal instruments such as gift deed, sale deed, transfer of property and agreements, stamp duty is payable on the agreements to lease or rent out a property or what is commonly known as rent agreement or leave and license agreement.
Why Collect Stamp Duty on a Rent Agreement
It is important to pay stamp duty for rent agreements as such unregistered agreement shall not be received as evidence of any transaction in any suits or proceedings except a suit or proceeding arising out of a contract between the parties where such agreement would be only admissible for collateral purposes. The landlord cannot sue the tenant for rent; or for the determination of any right or remedy under such agreement; and the tenant cannot sue the landlord for the performance, of any obligation arising from it. Thus, it is important that the landlord and the tenant should decide the proper consideration to be paid as rent for the premises, and the proper period of time within which the rent should be paid. Then, such rent should be properly stamped and registered as required by law in Gujarat.
Stamp Duty Rates on Rent Agreements in Gujarat
When it comes to rent agreements in Gujarat, there are different types of stamp duty rates applicable depending on the condition of the property. If the property is residential, the following rates will be applicable: Residential Rent – Rs. 500/- First time registered documents attract charge of Rs. 200/- as Registration Charges. If the property is non-residential, the following rates will be applicable: Non Residential Rent – Rs 1000/- (Rs. 300/- as registration charges). As stated above, when a lease agreement is first registered, ancillary documents (such as the rent agreement) will be required which will be given a charge of Rs. 200/-. Additionally, the property should not be vacant at the time of entering into lease or at the time of registration and stamp duty for renting a house or a flat in the month of May and June will be charged at 80% of the normal rates.
Lease of land or building: The stamp duty for a lease of land or building (other than a mortgage deed) is Rs. 25/- for every Rs. 6,000/-, or part thereof, of the annual rent or any part of such rent for the first 30 years of the lease and for every subsequent Rs 12,000/- or part thereof for the next 30 years. No consideration for a lease of land or a building shall be less than Rs. 70/- for the purposes of calculating the stamp duty. For example, the stamp duty chargeable for a lease deed for building for 30 years whereby the rent agreed is Rs. 6000 per month would be Rs. 425/- (assuming registration cost is Rs 200/-); thereafter, Rs 900 will be payable for the period of the lease deed from 31st year to 60th year. The annual rent applicable to the lease deed must be paid yearly within 30 days from the date on which it became due. Further, if a lease deed is renewed without a break the stamps paid will be carried forward and the party will only have to pay the additional duty, if required.
How to Calculate Stamp Duty on a Rent Agreement
Stamp duty is a compulsory charge that parties entering into a rent agreement must fulfill as per the provisions of the Gujarat Stamp Act, 1958 (the "Act"). The agreement can be marked by adequately paying the stamp duty on it. The amount of stamp duty to be paid depends on the term of the rent and the annual rent.
Rent agreements for a period of 11 months are the most common as these do not require mandatory registration under the provisions of the Registration Act, 1908. However, for rent agreements having a term of more than 11 months, both the parties will be liable to register the agreement as provided under the Registration Act, 1908.
Section 3 of the Act provides that the expression instrument includes every document by which any right is legally created, transferred, limited, extended, extinguished or released. In this respect, Section 2(10) of the Act defines ‘Instrument’ as any document by means of which any right or liability or any right or liability or claim, whether absolute, vested or contingent, of one person may be transferred to or become vested in, or confers or extinguishes or confirms or releases, any right, liability, or claim of another person.
Instruments have been given an extensive meaning in the above provisions and include the present rent deed. In exercise of such power, the government of Gujarat made rules under Section 40 of the Act for the removal of doubt regarding the date of enactment, the rates of duty on instruments, methods of appointment of inspectors and their duties and other matters. The Rules have been brought into force w.e.f. 1st April, 2007. Therefore, any rent deed and lease deed executed or executed after this date shall be stamped as per the rates notified.
The government in its notification dt. 30th March, 2007 explained the rate of rent deemed to be equivalent to the annual rent for a period of one year i.e. a deeming provision for calculation of stamp duty in case of the lease for a period less than 1 year (i.e. calculated at 8.5 months rent). At present, the duty on an agreement between landlord and tenant regarding tenancy for a period less than 1 year, the amount of duty will be in accordance with the rates of annual rent deem to be equivalent to the one year rent. Accordingly, for calculating stamp duty payable on a rent deed, annual rent is taken into consideration multiplied by 8.5/12 i.e. Rs. 8.5 paise. Further, if the agreement is for a period of 11 months, it will also be charged at the same rate.
Further, we wish to advise our readers that if a rent agreement/rent deed is executed, but it’s payment is avoided, or not paid, or left unpaid, the consequences of failure to pay stamp duty are serious. If a deed is not duly stamped, it cannot be received in evidence and be admissible in a court of law. So, it is always advisable to have a duly stamped rent agreement.
Payment of Stamp Duty on Rent Agreement in Gujarat
Modes for Payment of Stamp Duty in the State of Gujarat
Both online and offline modes for payment of stamp duty are available in the state of Gujarat. You can make payments of any amount of stamp duty through e-payment mode at present. For online payments, one can visit the official website of the Commercial Tax Department, Government of Gujarat. Offline payments can be made physically by visiting the designated bank branches in the state.
For online payments, you need to register yourself on the Commercial Tax Department (CTD) portal. Step 1: The registration page will become active after providing your login credentials. As a first time user, you will be required to register yourself on the portal by providing required credentials (including your mobile number and email address). Primary details like name, email ID, and PAN number, etc., will also be asked for. Step 2: Once you register yourself and log in to your account, you can start the process for generation of challan by clicking on the "pay stamp duty" link on the left hand corner. Step 3: On clicking the link you will be redirected to the following webpage:
This page provides two options to generate a stamp duty challan; either as a registered user or as a guest.
- Guest user/swalkar: a guest can generate a payment challan without creating an account on the Commercial Tax Department portal. In such a case, a guest has to provide his/her name, PAN, mobile number, email address, and name of the bank where payment is to be deposited. Further, he/she can pay in Indian rupees in cash or through cheque or credit note, up to a maximum of Rs.10,000 per month (stamps issued under section 12 of Indian Stamp Act). In this way , the visitor can register his/her transaction and obtain a temporary/challan no. to avail an appointment with a superintendent or Inspector for validating the details. – Registered user: a registered user needs to click on this option only when he/she has already registered on CTD portal. After logging in to your account, you will have a further option to choose Online or Bank/Branch Challans as discussed below:
- Online Payment Portal – Bank/Branch Challans
- Online Payment: In order to create a challan though the option of Online Payment, you have to provide your name, PAN, email ID, and bank account details. You will also have to select the respective bank from the list of authorized banks. The commercial tax department has authorized the following banks for payments: – Bank/Branch Challan: alternatively, you can submit challan acknowledgment receipt for payment offline through selected Branch/Bank. After selecting this option, you will have to provide your basic details along with details in respect of the bank name and IFSC code. The IFSC code is required in order to generate the required information of the branch where the payment is to be made. You will have to refresh the page to get the updated information after waiting for several minutes. Subsequently, you will have to select the bank where the payment is to be made. For further information in respect of payments, you can visit the official web portal of the Revenue Department of Government of Gujarat (revenue.gujarat.gov.in). The physical branch/Bank challans are deposited in designated banks which are authorized by Reserve Bank of India, G.S.R.Economic. Activities(D) (1) (2015): notification in respect of approved banks for receiving revenue payments through public sector banks (as on 09/07/2015). You can check the list of banks by clicking on "Click here to view list of banks".
Consequences of Not Paying Stamp Duty for Rent Agreement
The consequence of not paying the stamp duty or non-payment of correct amount of stamp duty (undervaluation ) is that the deed or document will be impounded by the registering officer. Impounding means that the registering officer will keep the document and send it to the Collector of stamps. The Collector will then calculate the loss of revenue to the state government and will impose a penalty. He can collect the deficit stamp duty, where the collector finds that whole or a part of duty chargeable on an instrument has not been paid or in case of undervaluation, may charge 10% of deficit amount as penalty, subject to maximum of 5,000/-.
If the Collector decides the matter in favor of the party who executed the document, he shall refund the penalty and if the matter is decided against him the sum shall be appropriated to the state government.
If the party who executed the document chooses not to file any appeal, the amount shall be payable on demand by the Collector. If the party who executed the document chooses to file an appeal against the order, section 48 provides that he shall deposit the deficit amount and 25% of penalty amount, if any, levied by the Collector. If the appeal filed against the order of the Collector is allowed, the amount deposited by him shall be returned along with interest.
Frequently Asked Questions
Common questions relating to stamp duty on Rent Agreements in Gujarat
What is a rent agreement?
A rent agreement is a contract between a landlord and tenant wherein the landlord allows the tenant to occupy a property for a specified period of time. Rent agreements are usually of two types: lease and leave and licence agreement.
What is a lease agreement?
A lease agreement is a rental agreement containing the obligations of landlords and tenants in regard with ownership and occupation of a property. This type of agreement is usually entered into for a longer term duration.
What is a leave and licence agreement?
A leave and licence agreement is a legal document regulating the relationship between a licencor (landlord) and licensee (tenant). This type of agreement does not create any interest or rights in the property for a tenant. It is a contractual relationship for a defined period of time. The sole purpose of a leave and licence agreement is granting the right to occupy a property.
What is the rate of stamp duty on a rent agreement in Gujarat?
The rate of stamp duty on a rent agreement in Gujarat are as follows:
How do I calculate stamp duty?
For calculating the stamp duty on a rent agreement, you must take into consideration the number of years for which the agreement is enforceable . Then calculate the average monthly rent and multiply it by 12 to get the annual average rent. Lastly multiply the total number of years by total annual average. The total amount will be in INR, so round it off to the next whole number. Now to calculate the stamp duty for your rent agreement you have to multiply the rounded off amount with 6%.
– For example if you have a house on lease for 11 months with a rent of INR 3000 per month then the formula comes out to be 6%*[(11*3000)*12] = INR 7920.
Are there exemptions in stamp duty for rent agreements?
Parties involved in rent agreements are exempt from paying stamp duty for agreements charged rent less than INR 2,999. Some other exemptions are:
What happens if stamp duty is not paid on rent agreements?
Stamp duty has to be paid on each and every rent agreement or lease agreement. If it is not paid, then the agreement will not be valid and proper course of penalties and levies will follow.
What is the penalty if the rent agreement is not registered?
If the agreement is not registered then there will be a 10% penalty on the required stamp duty.
Is registration sufficient to prove ownership and occupation of a property?
No, not always. The burden of proof lies on the party wishing to prove ownership and occupation.