Levy of Stamp Duty in India, Types of Stamp in India, Important Provisions of Stamp Duty and Bombay Stamp Act, 1958
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.
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 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.
1. Levy of Stamp Duty in India
The Indian Stamp Act, 1899 (the “Indian Stamp Act”) was enacted to consolidate and amend the law relating to stamps. It extends to the whole of India, except the State of Jammu and Kashmir. It includes all transactions between parties.
Section 2(14) of Indian Stamp Act, 1899 defines the instrument as every document by which any right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded.
The Indian Stamp Act, 1899 defines the term “duly stamped” as applied to an instrument. The phrase means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with law for the time being in force.
The Finance (No. 2) Act, 2004 inserted the definition of “stamp” as any mark, seal or endorsement by any agency or person duly authorised by the State Government, and includes an adhesive or impressed stamp, for the purposes of duty chargeable under Indian Stamp Act, 1899.
The Indian Stamp Act, 1899 is a Central enactment and States have powers to adopt the Indian Stamp Act, 1899 with amendments to the same to suit the transactions peculiar to each State. Section 3 of the Indian Stamp Act, 1899 is the charging section and stipulates that stamp duty has to be paid on the instruments provided in Schedule I to the Indian Stamp Act, 1899. Certain States have introduced Schedule IA to the Indian Stamp Act, 1899 being the stamp duty payable in that State.
States such as Gujarat, Maharashtra, Karnataka, Kerala and Rajasthan have their separate State Stamp Acts, while many States follow the 1899 legislation. However, where stamp duty payable on certain transactions is not covered in the respective State Stamp Act, the State/s refer to the stamp duty rates provided in the Indian Stamp Act, 1899 for such transactions.
The stamp papers impressed with the desired amount of stamp duty are used both for judicial and non-judicial purposes as described hereinbelow:
- Judicial Stamp (court fee stamp): Stamps used in courts i.e. for applications, petitions etc., are judicial stamp papers and in normal parlance are called court fee stamps.
- Non-Judicial Stamp: Non-judicial stamp is the most common form of stamp used throughout the country to register deeds, contracts and other instruments. This kind of stamp is printed (impressed) on the paper in various denominations, such as Rs. 50, Rs. 100, Rs. 1,000, Rs. 5,000.
The revenue from such duties forms a considerable part of the revenues of the State. For the sake of ensuring uniformity of rates of duty with regard to certain instruments of a commercial nature such as bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts, the power to prescribe the rates of duties on such commercial documents is vested with the Union Legislature (Schedule VII Entry 91 of the Union List) and the power to reduce, remit or compound such duties on the commercial documents is also vested with the Central Government (Section 9 of the Indian Stamp Act).
On the other hand, the power to prescribe the rates of duties on non-commercial instruments is vested with the State Legislature (Schedule VII Entry 63 of the State List) and the power to reduce or remit such duties on non-commercial documents is with the State Government (Section 9 of the Indian Stamp Act).
The legislation has added separate Schedules to the Indian Stamp Act, 1899 applicable to the concerned States, except in Tamil Nadu, Assam and the North Eastern States where the changes are made in the Articles of Schedule I. The Indian Stamp Act, 1899 is also in force in the whole country as regards matters in the Concurrent List, but the Legislature has amended various sections and added new sections as applicable to each State. In the five States referred to above, the Act is in force in such matters only as regards instruments specified in entry 91 of the Union List. Thus, the Indian Stamp Act, 1899 is now a composite Act amended by the Union Legislature and State Legislature in their respective spheres of legislation.
The disparity of stamp duty in respect of the (noncommercial) documents has become greater on account of State legislations since different States levy different stamp duty on the similar instruments.
With regard to conveyance there is another important aspect which seems to have received no attention at all till now, except in a few States where market value of the property is made the criterion for duty. A transfer may be for a consideration which is far less than the real value of the property because of the transferor’s natural love and affection towards the transferee or of a sense of gratitude for some past act of service or of hope of future reward in some kind; but still duty would be chargeable only on the actual amount of consideration i.e. real value (market value) of the property.
2. Types of Stamp in India
There are two kinds of stamps (a) impressed stamps, and (b) adhesive stamps.
A. IMPRESSED STAMPS
- Labels affixed and impressed by proper officer;
- Stamps embossed or engraved on stamped paper; and
3. Impressions by franking machines generally being done by the banks by depositing the necessary amount of stamp duty with the banks. This kind of stamping is mostly preferred on instruments (other than commercial instruments) as at times it becomes difficult to obtain stamps embossed on stamp paper of a higher value such as, Rs. 5,000 or Rs. 10,000. For example, if on an instrument, the stamp duty payable is Rs. 16,00,000 it would be very difficult to collect embossed stamp papers of say Rs. 10,000 aggregating Rs. 16,00,000. Hence, it is convenient for the person paying stamp duty to simply draw a pay order in favour of bank which shall frank the instrument for an amount of Rs. 16,00,000 as franking may be allowed up to any amount.
B. ADHESIVE STAMPS
Adhesive stamps are labels which can be conveniently stuck on the instruments. Adhesive stamps can be further categorised as postal stamps and non-postal stamps. Postal Stamps are used only for transactions with the post office and related functions.
Non-Postal adhesive stamps are:
- Court fee stamp: Court fee stamps are generally used by public and other departments as processing fees for transactions with Government departments, such as RTO, police, revenue officers.
- Revenue Stamp: Revenue stamps are used for acknowledging the receipt of money.
- Notarial Stamp: Notarial stamps are used by a Notary Public who is a duly appointed officer whose function is to draw, attest and certify deeds, conveyances and Power-ofattorney usually under his official seal along with the notary stamp (Article 42 of the Indian Stamp Act, 1899);
- Special adhesive stamp: The Special adhesive stamps are non-judiciary stamps used in certain financial instruments such as bills of exchange, cheques, promissory notes, instruments of transfer of shares and transfer of debentures (Rule 17 of the Indian Stamp Rules, 1925.
- Foreign bill stamp: Foreign bill stamp is a special adhesive stamp bearing the words Foreign Bill. Such kind of stamp is generally used in case of bills of exchange and promissory note drawn out of India (Rule 17(a) of the Indian Stamp Rules, 1925).
- Broker’s note: Brokers note is a special adhesive stamp bearing the words Broker’s Note. Such kind of stamp is used in case of transactions through brokers or agent to his principal intimating the purchase or sale on account of such principal (a) if any goods exceeding Rs. 20. (b) of any stock or marketable security exceeding Rs. 20 (Article 43 of the Indian Stamp Act, 1899.)
- Insurance Policy stamp: This kind of stamp is used by the insurance department to authenticate the insurance policies.
8. Share transfer stamp: This kind of stamp is used by financial institutions in respect of transactions pertaining to Shares (Article 62 of the Indian Stamp Act, 1899.
3. Important Provisions of Stamp Duty
Power of Parliament in respect of stamp duty: Parliament has exclusive powers to make laws with respect to any of the matters enumerated in Union List which includes, prescribing rates of stamp duty. The stamp duty rates prescribed by Parliament in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts, will prevail all over India. In case of States, the rates prescribed by individual States will prevail in those States.
Powers of State Government in respect of Stamp Duty: State Government has powers to fix stamp duties on all documents, except bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. The rates prescribed by State Government will prevail in that State.
Instruments chargeable to stamp duty: Instrument includes every document by which any right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded. Any instrument mentioned in Schedule I to Indian Stamp Act, 1899 is chargeable to duty as prescribed in the Schedule. The list includes all usual instruments like affidavit, lease, memorandum and articles of association of a company, bill of exchange, bond, mortgage, conveyance, receipt, debenture, share, insurance policy, partnership deed, proxy, shares etc. Thus, if an instrument is not listed in the Schedule, no stamp duty is payable.
Duty payable when there are several instruments: In case of sale, mortgage or settlement, if there are several instruments for one transaction, stamp duty is payable only on one instrument. On other instruments, nominal stamp duty is payable. If one instrument relates to several distinct matters, stamp duty of aggregate amount is payable on the principal instrument. However, it may happen that one instrument covering only one matter can come under more than one description given in Schedule to Stamp Act in such a case, the highest rate specified among the different heads will prevail.
Powers to reduce stamp duty: The Government can reduce or remit whole or part of duties payable. Such reduction or remission can be in respect of whole or part of territories and also can be for particular class of persons. The Government can also compound or consolidate duties in case of issue of shares or debentures by companies. Government means “Central Government” in respect of stamp duties on bills of exchange, cheque, receipts etc. and “State Government” in case of stamp duties on other documents.
Mode of payment of stamp duty: The payment of stamp duty can be made by adhesive stamps or impressed stamps. Instrument executed in India must be stamped before or at the time of execution of the same. Instrument executed out of India can be stamped within three months after it is first received in India. However, in case of bill of exchange or promissory note made out of India, it must be stamped by first holder in India before he presents for payment or endorses or negotiates in India.
Valuation for stamp duty: In some cases, stamp duty is payable on ad valorem basis, i.e. on basis of value of property. In such cases, value is decided on prescribed basis by the Government.
Adjudication as to stamp duty payable: Adjudication means determining the proper duty payable on an instrument.
Normally, the person paying the duty himself may calculate the stamp duty payable as per the rates provided in the Indian Stamp Act or the State Stamp Act, as the case may be, and pay accordingly. However, in cases of complex documents, the person paying the duty may not be able to ascertain the correct stamp duty payable, and in such case, he can apply for opinion of the Collector of Stamps.
For getting the instrument adjudicated, one has to apply with draft document and prescribed fees for adjudication to the Collector of Stamps. The Collector of Stamps will then determine the stamp duty payable on such instrument as per his judgment.
Instrument will not be accepted as evidence if not duly stamped: An instrument not duly stamped will not be accepted in evidence by court of law, an arbitrator or any other authority authorised to receive the same in evidence.
Case when deficient payment is by mistake: If nonpayment or deficient payment of stamp duty is by accident, mistake or urgent necessity, the person can himself produce the document to Collector of Stamps within one year for payment of the proper stamp duty. In such a case, the Collector of Stamps may receive the amount and endorse the document that proper duty has been paid.
4. Bombay Stamp Act, 1958 (the “Bombay Stamp Act”)
Stamp duty is levied by different States in accordance with their respective Stamp laws enacted in line with the Indian Stamp Act, 1899. Such stamp duty collected forms a considerable part of the revenue of the States. Revenue so collected by the States is earmarked to the State in which they are levied under the Constitution of India. However, the power to prescribe the rates on the commercial instruments (as stated in the Indian Stamp Act, 1899 and Section 74 of the Bombay Stamp Act, 1958) remains with the Parliament.
Provision of the Indian Stamp Act, 1899 and Bombay Stamp Act, 1958 are more or less similar, so also the Schedules appended to these two Acts. However, the stamp duties fixed under these Acts materially differ. For example, with the introduction of the concept of “true market value” of the immoveable property to Article 25 of the Bombay Stamp Act, 1958, the stamp duty payable on instruments such as conveyance, exchange, gift, partition, power of attorney to sell when given for consideration, deed of settlement, transfer of lease, is on the basis of market value of the subject matter and not on the basis of consideration mentioned in such instruments as was provided earlier.
Stamp Duty on instruments under the Bombay Stamp Act, 1958
Schedule I of the Bombay Stamp Act, 1958 comprises of 62 instruments that are chargeable to stamp duty as provided under section 3 of the said Act along with exemptions as contained therein. The 62 instruments are indicated in the form of articles under Schedule I.
Broadly, the 62 articles of Schedule I can be grouped in three categories:
Category I):- Articles whose amount of Stamp duty is fixed irrespective of the value mentioned in the instrument. (for example, administration bond, adoption deed, affidavit, divorce, appointment in execution of power, apprenticeship deed, article of clerkship, award, cancellation deed, partnership deed, copy of extracts, entry of memorandum of marriage, indemnity bond, letter of licence, memorandum of association of a company, notarial Act, power of attorney).
Category II) Articles where depending upon the value mentioned in the document, the amount of stamp duty is varied (such as agreement relating to deposit of title deeds, pawn, pledge or hypothecation, clearance list, article of association, mortgage deed, security bond.)
Category III) Articles which attract stamp duty on the consideration mentioned in the document or True Market Value, whichever is higher (such as conveyance, agreement for sale, lease, gift, exchange, partition, development agreement, transfer, trust.)
For category (I) and category (II) types of instruments the stamp duty payable can be ascertained by referring to the Schedule I; but to ascertain the Stamp duty on the instruments mentioned in Category III, the expertise in valuation is required. The True Market Value is determined as per the provision of the Bombay Stamp (Determination of True market value of the Property) Rules, 1995.