How to pay stamp duty in India - a comprehensive guide
- Stamp Duty is the tax levied by State Governments on the execution of specific classes of documents.
- To execute a document legally, its mandatory to pay stamp duty to the government
- In this post we outline the various different ways to pay stamp duty in India
What is stamp duty?
Stamp duty is essentially a tax levied by a government on the execution of certain classes of documents. In India, this tax is usually levied by State Governments.
Collection of stamp duty vests with the state government in India. While there is a central legislation called the Indian Stamp Act, 1899, most states have their own ‘Stamp Acts’ that list out which ‘instruments’ shall be stamped and at what rate.
An ‘instrument’ is defined as a “document, by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded”. This definition of an instrument is wide enough to cover any form of agreement, conveyance or deed - both physical and electronic.
What if I fail to pay stamp duty?
Non payment of stamp duty can have the following adverse consequences:
- A court or any other authority will not be able to accept that document as admissible evidence.
- Such authority will not be able to act upon, register or authenticate the terms of that document, preventing a person from relying on that document for securing some legal remedy. For example, a Sub-registrar will not be able to register an unstamped/inadequately stamped loan agreement.
- Not paying stamp duty on time could also come with specific costs. For instance, if a party has not paid stamp duty at the time of executing the document, and later seeks to admit that document in court, in order to avoid the above consequences, the person could pay stamp duty then, but risk being held liable to pay up to ten times the amount of stamp duty payable.
- Any person authorised to receive evidence, or a government officer, could impound that document for non-payment of stamp duty.
- In some circumstances, the person concerned with the document could even face criminal charges for not paying stamp duty.
Now that we have learnt what stamp duty is, and why it must be paid, the next question that naturally arises is, how do I pay stamp duty?
What are the different ways to pay Stamp Duty in India?
The fact that stamp duty has been paid for a particular instrument is shown by inserting stamp paper(s) as the first page of the instrument. Therefore, stamp papers and stamp duty are almost interchangeable terms. This is because stamp papers are nothing but proof that the requisite stamp duty has been paid for that particular instrument.
Broadly speaking, the different methods of paying stamp duty legally can be classified into 3 categories:
- Physical stamping
- Phygital stamping
- Digital stamping
A common procedural concern with any form of stamping is that the stamp paper used to show payment of stamp duty for a particular instrument may be used to show payment for another as well.
To overcome this problem, stamping laws require the stamp to be ‘defaced’. This means that once stamp paper is purchased, it needs to be physically altered or marked in a way that ties it to the instrument being executed. This helps to prevent the stamp paper from being duplicated and used for two different instruments. There are 2 common modes of defacement:
i) Printing a part of the instrument on the stamp paper;
ii) writing a legend on the stamp paper which describes the instrument for which the stamp paper is being used. Lawyers across the country have been using this method for decades.
This requirement of defacement is mandatory for ALL modes of stamping.
1. Adhesive stamps
These are used for specified classes of documents and transactions as enumerated in Section 11 of the Indian Stamp Act, 1899. Similar to postal stamps, these are pasted on the paper document being executed. You can get these stamps from authorised stamp vendors.
2. Impressed stamp papers
Impressed stamp papers are stamps that are affixed, impressed, embossed or engraved on paper. They are printed in a security press, and have certain security features such as translucent images and a security strip on the left, which make it near impossible to be reproduced by unauthorised vendors.
To pay stamp duty using impressed stamp papers, one must visit an authorised stamp vendor who will issue the stamp paper upon payment of the requisite stamp duty and a convenience fee. This stamp paper is then affixed on the first page of the document. These stamp papers contain certain details such as the denomination, name of the state in which it has been issued and a unique stamp certificate number.
The process of franking involves impressing the to-be-stamped instrument with a red mark. The impression can be made only by automated franking machines authorised by the government. This method is commonly used in several states such as Rajasthan, Karnataka, West Bengal, Tamil Nadu among others. It requires paying the stamp duty and then going to an authorised officer with a franking machine to emboss the first page of the document with a mark. The officer may affix their wet-ink signature on the mark. Some states may require the officer to write down specific details on the mark that allow it to be traced back to the concerned franking machine. These details can include the serial number pertaining to the impression, the name and address of the purchaser, the value of the stamps purchased, and the license number of the authorised entity using the franking machine.
Franking services are usually available at the sub-registrar’s office or at certain banks which hold a franking license.
These non-electronic methods have traditionally been the most commonly used methods of paying stamp duty. However, the inconvenience of paying stamp duty through these methods is pretty obvious:
Several states have introduced a method to pay stamp duties electronically, backed by specific rules and regulations, to ensure that stamp duty payment can be, at least partially, digitised.
Are you wondering why something that is called “E-stamping” has not been included in the digital stamping category? That is because under “E-stamping” only the actual payment of stamp duty happens electronically. The stamp paper is still, unfortunately, issued to the buyer in physical form.
How does eStamping work?
The major system currently in operation is E-stamping through the Stock Holding Corporation of India (SHCIL): Several states have appointed SHCIL as a central record keeping agency for the purpose of administering the e-stamp process. Currently, this system is followed in Karnataka, Gujarat, Uttarakhand, Delhi, Chhattisgarh and Rajasthan among other states. This system involves the following steps:
Step 1: You must visit an authorised stamp vendor who has been licensed by SHCIL.
Step 2:You inform the vendor of the denomination and quantity of stamp papers you want. Since e-stamp certificates are printed on official stationery, vendors have a limited stock of papers available per day.
Step 3: Pay the stamp duty and convenience fee to the vendor who then pays SHCIL electronically using their account.
Step 4: The vendor then prints the e-stamp certificate(s) and gives them to you for your use.
This certificate is then affixed to the instrument, and appears as the first page.
Maharashtra has also introduced their own equivalent of e-stamping. In Maharashtra, the e-stamp process involves payment of stamp duty into the virtual treasury through an authorised participating bank. Upon payment of stamp duty into the virtual treasury, an e-challan is generated which has a unique “Challan Identification Number” and a “Government Reference Number”. The e-challan so generated is thereafter required to be submitted to the authorised participating bank within 6 months, pursuant to which the bank issues an E-SBTR (Electronic Secure Bank and Treasury Receipt) printed on secure government issued stationery. The E-SBTR is classified as “impressed stamps” and the same rules that apply to a physical stamp paper are applicable to the E-SBTR.
The problems associated with physical stamping apply in large parts to e-stamping as well. You still have to find, contact and maintain relationships with authorised stamp vendors across the country. And given that the stamp certificate is still issued in physical form, the inconvenience of going to the authorised collection centre and the risk of damage/loss to the stamp certificate also exists.
State-wise Stamp Duty Payment Method
States in India at times provide more than one method of paying stamp duty. Given below is the list of states and the mode of stamp duty payment operationalised there:
The obligation to pay stamp duty is applicable even if a person signs on the digital equivalent of a document – that is, if the person executes an electronic record. There are many State governments that have expressly clarified this – such as Maharashtra , Karnataka , Gujarat , Kerala , Rajasthan , Uttar Pradesh , Uttarakhand – and this would be the position even in the case of those that have not expressly done so (remember we mentioned that the definition of ‘instrument’ is wide enough to cover electronic documents as well?).
For a mode of payment of stamp duty to qualify as ‘digital stamping’ it should fulfil the following criteria:
(i) The stamp duty amount should be paid electronically;
(ii) The stamp paper should be rendered digitally.
Digital stamping thus provides a seamless, online alternative to the paper heavy, slow and expensive stamping process.
5. E-stamping in Haryana
In addition to Maharashtra, Haryana too has its own e-stamping equivalent. In Haryana, e-stamps are governed by the Haryana Stamp (Payment of Duties by Means of Online E-Stamping) Rules, 2017. The unique feature of e-stamps under the Haryana Rules is that the e-stamp is rendered digitally upon payment of stamp duty, and there is no requirement to collect the physical e-stamp certificate/e-SBTR from an authorised collection centre. Hence, these digital e-stamps can be affixed to your electronic documents easily without having to print it on paper, scan it and then affix it electronically.
6. NeSL (National e-Governance Services Limited)
NeSL is India’s first and only Information Utility under the Insolvency and Bankruptcy Code, 2016. It is a repository of legal evidence for financial credit contracts set up under the IBC, 2016. The Reserve Bank of India has mandated that all banks and other institutions under its purview should keep a digital record of their credit business with NeSL. So when a financial institution makes out a loan to a customer, all the documents of the credit transaction are uploaded onto NeSL's platform, which acts as legally valid evidence of debt.
To facilitate MSMEs and individuals to avail paperless loans from financial institutions on a remote basis, NeSL set up a secured digital document execution (DDE) platform. Through the DDE platform financial institutions can send out loan documents electronically to its customers using NeSL’s real time instant digital stamping solution.
The list of 20 states and union territories where NeSL provides digital stamping services through its DDE platform can be accessed here - See the list
The major drawback of NeSL’s digital stamping solution is that it only supports a retail lending journey and can be accessed only by financial institutions like banks and NBFCs.
To avoid the operational hassles of physical stamping, Leegality has built BharatStamp, the first system in India that allows you to stamp documents digitally in a legally compliant manner. You can buy stamp papers from 25+ states in India and affix them digitally to your electronic documents instantly.
You just need to choose which state you want stamp papers from and specify their denominations. Based on your request Leegality will procure the stamp papers from authorised vendors across the country. A unique ID is then generated which is used to deface the stamp paper and tie it to the electronic document which needs to be stamped. The defaced stamp paper is then scanned and such digitally rendered copy can be affixed to any electronic document you want. Leegality will then send the defaced physical copy of the stamp paper to your organisation for future reference.
The BharatStamp Digital Stamping process is completely legal and secure. Section 4 of the IT Act, 2000 states that an electronic copy of a physical document will have the same equivalence as the physical original, as long as the physical copy is still accessible for subsequent reference. BharatStamp remains IT Act compliant by ensuring that the digitally rendered stamp and the physical original are exactly the same and available with you for your records.