The stamp duty on a rental agreement is a tax that is paid to the government for the execution of the rental agreement. In general, stamp duty is a government tax that is paid to execute different kinds of contracts and agreements that involve a financial transaction or commitment.
What the stamp duty does on a rental agreement, therefore, is form a legal relationship between the landlord and the landlord which will be binding for the period of the tenancy period. It gives legal validity to the rent agreement that the landlord and tenant have drawn up and want to be registered.
The stamp duty is payable under section 3 of the Indian Stamp Act, 1899. It required to be paid by the time of registration of the contract, along with all the necessary costs and procedures needed to register a rent agreement.
Do you have to pay stamp duty on rental agreements?
Stamp duty is payable under Section 3 of the Indian Stamp Act, 1899. As stamp duty is a government charge that is levied on various property transactions, it is needed when renting a property or buying a property.
How do you pay stamp duty on rental agreements?
The stamp duty on rental agreements is paid by purchasing stamp paper. Purchasing stamp paper can be different depending on the state that you live in. Some states offer the e-stamping system where you can get it done online. Some states still continue the with the traditional impressed non-judicial stamp papers that need to be bought from stamp vendors. In some states, such as in Maharashtra, the stamp duty can be paid online through the government’s website.
Franking is another way in which stamp duty can be paid. It involves given in an application at a bank or any other authorized agency with the document that requires stamp duty to be paid. The agency then puts a stamp on it proving that the required stamp duty has been paid.
What are the stamp duty rates in different states in India?
Each state will levy the stamp duty tax differently as stamp duty is a state subject and there are various elements that influence the stamp duty rates. These elements may include the buyer’s gender, age of the buyer, and purpose. One factor that heavily decides the amount of stamp duty that needs to be paid is the location of the property.
In the case of rent contracts for 11 months or less, stamp paper of Rs. 100 or Rs. 200 can be used. However, every rent agreement needs to be registered if the rent tenure is greater than 11 months. Here’s a summary of how different states and cities in India levy stamp duty tax.
1. Stamp Duty in Maharashtra
- The Bombay Stamp Act, 1958 controls the stamp duty on rental agreements in Maharashtra.
- The stamp duty rate is 0.25% of the total rent for up to 60 months.
2. Stamp Duty in Delhi
- The stamp duty on registered rental agreements in Delhi varies according to the tenure of the lease.
- Stamp paper equalling 2% of the total average annual rent and Rs 100 as the security deposit is applicable if the period is 1 to 4 years.
- It will be 5% of the total average annual rent when the lease period is set between 5 to 10 years.
- If the lease period is set between 10 and 20 years, the stamp duty rate is 5% of double the total average annual rent. Plus, payment of Rs. 1100 for registration.
3. Stamp Duty in Hyderabad
- Stamp duty is 0.4% of the total rent payable when the lease period is less one year. In this case, the rental agreement need not be registered.
- If the rental agreement is registered then the stamp duty falls at 0.5% of the average annual rent when the lease period is 1 to 5 years.
- Stamp duty is 1% of the average annual rent when the lease period is between 5 to 10 years.
- Stamp duty is 6% of the average annual rent when the lease period is between 10 to 20 years.
4. Stamp Duty in Bangalore
- Stamp duty is 0.5% of the annual rent and deposit or Rs. 500 (whichever is lower) when the lease period is less than one year. In this case, the rental agreement need not be registered.
- If the rental agreement is registered then the stamp duty is set at 1% of the annual rent and deposit or Rs. 500 (whichever is lower) when the lease duration is 1 to 10 years.
- the stamp duty is set at 2% of the annual rent and deposit or Rs. 500 (whichever is lower) when the lease duration is 10 to 20 years.
- The charges for registration start at Rs. 200 and can be 0.5% to 1% of the annual rent and deposit.
5. Stamp Duty in Nodia
- Stamp duty is 2% of the annual rent when the lease period is less than one year.
- Stamp duty is 2% of the annual rent in the first three years when the lease period is from one to five years.
How is the stamp paper value needed for a rent agreement decided upon
The location of the property is the most important factor that decides the estimation of the value of the stamp paper needed. Another key factor that plays an important role is the duration of the agreement. The stamp duty for leases varies according to whether it is a long-term or short-term lease and what state you are in. Annual rent of the property also plays a role, especially when renting out a commercial space.
Frequently asked questions
For rental stays that are less than 11 months, a rental agreement does not have to be registered. Stamp duty is crucial for longer-term stays.
A rental agreement can be backdated according to the terms of the agreement. Stamp duty costs cannot be backdated.
Either party, the landlord or the tenant, can buy the stamp paper. Whomever buys it will be the purchaser of the document and they will own the original agreement. If you have not bought it, you can get a photocopy or scanned copy of the original agreement.
Yes, e-stamping is a valid way to pay stamp duty if your state has the provision for it. With e-stamping, you do not have to buy physical stamp paper for a rental agreement. It is done by logging on to the Stock Holding Corporation of India Ltd (SHCIL) website. From here you can check if your state offers this facility and be guided with the process.