Stamp duty, registration and property tax, explained

Stamp duty is a state tax on the instrument of transfer, charged on the higher of the consideration and the value the state has notified for that locality. The registration fee is separate, for recording the deed. Property tax is an annual municipal levy, assessed on rental value, unit area or capital value depending on the city.

How stamp duty is assessed

Stamp duty is a tax on a document, not on a property. The sale deed is the taxable instrument, and until it is properly stamped it cannot be registered. Because stamp duty on a conveyance is a state subject, each state fixes its own rate, its own concessions and its own surcharges, and all of those can change with a single notification in the middle of a financial year. That is why no reliable guide can print a table of current rates: by the time you read it, some of the figures will be wrong. What does not change is the method.

The method has three steps. First the authority establishes the value on which duty is chargeable, which is the higher of the consideration recorded in the deed and the value the state has notified for that locality and that type of property. Second it applies the rate in force on the date of execution, together with any local surcharge or cess the state adds on top. Third it checks whether any concession applies, because several states charge a lower rate where the buyer is a woman, or for a transfer within a family, or in certain categories of rural land, and some give a partial set-off for duty already paid on a registered agreement for the same transaction.

Those concessions are exactly where generic advice goes wrong, since they are drawn differently in every state and are amended often. Confirm the rate that applies to your transaction with the state's registration or stamps department, or with PropIQ's stamp duty calculator, before you budget for it.

Circle rate, guideline value, ready reckoner rate: one instrument, many names

Every state publishes a schedule of minimum values for registration purposes, broken down by locality, street or survey number, and by the kind of property: open land, flat, independent house, shop, industrial shed. It is revised periodically, usually by the registration department or a district-level committee. Its purpose is to set a floor under declared transaction values so that duty cannot be avoided by understating the price.

Two misunderstandings follow. The first is that the notified value is the market value. It is not: it is an administrative floor, and it can sit well below the street price in a sought-after pocket or well above it in a locality that has fallen out of favour or is split across zones. The second is that a transaction below the notified value can be stamped on what was actually paid. It cannot. If you buy a flat for less than the notified value, duty is still assessed on the notified value, and the gap costs you money without buying you anything. Our circle rate calculator helps you find the notified figure for a locality before you commit to a price.

A worked example

The figures below are illustrative. The rates used are not any state's actual rates, and they are here only to show the arithmetic and where the higher-of rule bites.

Three things to take from it. The gap between the two values, not the price itself, is what the higher-of rule costs you. The registration fee is computed separately and often on the same value. And where the notified value exceeds the price, the shortfall has an income-tax consequence as well, which is the next section.

Buying below the notified value

Where the consideration is lower than the notified value, the Income-tax Act treats part of the gap as income in the hands of both sides. For the seller, the stamp duty value is substituted for the actual price in computing capital gains, so tax is paid on a gain that was not received. For the buyer, the difference between the stamp duty value and the price is treated as income from other sources. Both provisions carry a tolerance band, so a small shortfall is ignored, and the buyer's charge also has a monetary floor below which it does not apply.

The tolerance band has been changed more than once and has had temporary variations for particular categories of residential sales, so check the figure that applies to your assessment year with a tax adviser rather than assuming the one you read about earlier. Where the notified value looks plainly wrong for the property, the law allows the matter to be referred for a valuation, which is worth raising before the deed is executed rather than after an assessment notice arrives.

Two related points. Tax deducted at source applies on the purchase of immovable property above a threshold, is computed on the higher of the consideration and the stamp duty value, and is the buyer's obligation to deduct and deposit, with a challan-cum-statement filed afterwards. And the cash element has its own limits: the law restricts receipt of large sums in cash, so a seller asking for part of the price in cash is proposing a problem for both sides. Our capital gains calculator covers the seller's side.

Registration fees and the other charges at the counter

The registration fee is not part of stamp duty. Stamp duty is a tax on the instrument; the registration fee is what the registration department charges for recording it, and it is governed by a separate state fee schedule. In most states it is computed as a percentage of the same value duty was assessed on, and several states cap it at a ceiling so that it stops rising on expensive properties. Some states levy it as a flat amount for certain instruments. Confirm the current figure for your state rather than assuming a round percentage.

Beyond the two main charges, expect smaller items at the counter: a scanning or document-handling fee, a user charge for the online slot and data entry, the cost of the e-stamp certificate or franking, and a fee for the certified copy of the registered deed. Where a facilitator or document writer is used, that is a private charge and negotiable. None of these is large on its own, but together they are worth putting in the budget. What buying a home costs in total, including these, is set out in what buying a home really costs.

Who pays what

By settled convention across most of India, the buyer pays the stamp duty and the registration fee, and the seller bears the cost of clearing dues on the property. The stamp law supports that convention: in the absence of an agreement to the contrary, the duty on a conveyance falls on the buyer. But it is a default, not a prohibition. The parties can agree to split the duty or to have the seller bear it, and in a soft market sellers and promoters sometimes do, which is why offers of free registration appear in launch campaigns. If that is the deal, put it in the agreement in plain words, with the amount or the share stated.

The other allocations are worth settling in the same clause: who pays the society transfer charges, who clears outstanding property tax and maintenance to the date of handover, who bears the cost of the no-objection certificates, and who pays for the certified copies. These are not large sums, but they are the ones that cause arguments at the registration counter when nobody has written them down.

The appointment at the sub-registrar's office

Registration itself is usually a short appointment. The deed has to be presented for registration within four months of execution; a further period can be condoned by the Registrar on payment of a fine, which the statute caps as a multiple of the registration fee, so a delay is recoverable but not free. Most states now take slot bookings online and expect the duty and fee to have been paid in advance, with the e-stamp certificate or challan produced at the counter.

At the appointment the parties are identified, photographed and fingerprinted, the deed is presented with the witnesses, and the registering officer records the particulars and endorses the document. Read the final engrossed deed before you sign it rather than relying on the draft you approved, because the description of the property, the extent, the consideration and the names are where transcription errors appear, and they are tedious to rectify afterwards. The registered deed or its certified copy is collected later, and where there is a home loan the original usually goes to the lender.

Requirements differ a little by state and by the nature of the property, so check the local list as well. The registration checklist has the searches to complete before the appointment, and which property document proves what explains each of the papers above.

Mutation, and what skipping it costs

Registration records the transfer in the registration department's books. It does not update the municipal assessment register or the revenue record of rights, which still show the seller. Changing those is mutation, and it is a separate application to a separate office: the municipal corporation for an urban property, the revenue authority for land. It goes by different names, including khata transfer in Karnataka, namantaran in Maharashtra, dakhil kharij in Bihar and Jharkhand, and intiqal in Punjab and Haryana.

Mutation does not create or confirm title, and courts have repeatedly said so. Your registered deed has already done that work. What mutation does is make the records agree with reality, and the consequences of leaving them disagreeing are practical rather than legal. The tax demand continues to go to the seller, so arrears build up without your knowing. Utility and society transfers get stuck because the department wants to see the record in your name. A future lender's technical report flags the mismatch. And when you come to sell, your buyer's advocate finds a record that does not name you, which delays the transaction at the worst possible moment. Apply as soon as you have the registered deed, and keep the mutation certificate with the deed.

How municipal property tax is assessed

Property tax is levied by the municipal body, under state municipal law, for local services. It has nothing to do with stamp duty, and the value it is assessed on is usually not the value duty was charged on. Three assessment systems are in use across Indian cities, and which one applies determines what actually drives your bill.

Municipal methods are changed by resolution and several corporations have migrated from one system to another, usually with transitional caps so that bills do not jump. Confirm the basis with your own corporation rather than assuming the system used in the last city you lived in, and use PropIQ's property tax calculator for an estimate on the city's current basis. Two features recur whatever the system: self-occupied property is generally taxed more lightly than let property, and rebates for early or full-year payment are common and worth taking.

Reading a property tax demand

Most demands are harder to read than they need to be, but the same elements are there. Find the property identification first, variously a property tax identification number, assessment number or khata number, and check it against your documents, because an error here is why some owners pay somebody else's bill for years. Then find the assessed area and the category of use. These two are the commonest sources of an inflated demand: an area that includes a balcony or a terrace it should not, or a residential property assessed as commercial because a previous occupant ran a business from it.

Next read the computation line: the rate or rental value applied, the depreciation for age, and the multipliers. Then the charges that sit alongside the tax itself, which commonly include water and conservancy or solid-waste charges, a library or education cess, and in some cities a drainage levy. Finally read the arrears and interest lines separately from the current demand, because they are the part that signals a problem. If the area, the category or the identification is wrong, apply for revision of the assessment with the approved plan and the deed; corporations correct these routinely, but only on application.

Arrears when you buy a resale flat

Unpaid property tax is the liability that most often follows the asset rather than the person. Municipal statutes commonly make the tax a charge on the property, and in practice the corporation pursues whoever owns it when the demand is raised. A buyer who takes possession without checking can inherit several years of arrears with interest and find that the only practical route is to pay and then chase the seller.

The protection is straightforward and has to happen before registration, not after. Ask the corporation for the demand and payment position on that assessment number rather than relying on the receipts the seller offers, since a receipt proves one payment and not the absence of arrears. Make clearance of all dues to the date of handover an express condition in the agreement, and hold back enough of the price to cover the position if it is still unclear on the day. Do the same for society maintenance, where the association's no-objection certificate is the evidence, and for electricity and water, where arrears follow the connection. Then apply for mutation, so the next demand comes to you and the cycle does not repeat.

For the wider picture, which property document proves what covers the papers behind these charges, and PropIQ's calculators let you put numbers to them before you commit.