Stamp Duty on Resale Flats

A resale flat is a property that has already been owned by someone else and is being sold by the current owner. This is different from a new or under-construction property, as the buyers are purchasing a pre-owned property in a resale flat transaction.

Stamp duty is the amount imposed by the states on legal documents executed regarding the resale flats, and it legalises the deed. It is usually charged as a percent of the sold value of a property and will vary according to the state. The resale flat registration charge in most states is 1%. For example, in Chennai, it is 7% of the resale market or agreement value plus 1% as a registration fee.

Paying stamp duty is mandatory for registering the sale deed, ensuring the transaction's legality, and protecting the buyer's ownership rights. Often, people assume that there is no stamp duty on resale flats. In reality, regardless of whether it is a first sale or subsequent sale, all real estate transactions incur stamp duty and registration charges.

According to Section 3 of the Indian Stamp Act of 1899, stamp duty is payable upon sale of all types of properties – a flat under construction, a ready-to-move-in flat, or a resale flat. When the sale deed of a property gets registered, there will be stamp duty to be paid. The state in which a property is being registered determines stamp duty.

Stamp duty on resale flats is calculated based on the property's market value or agreement value, whichever is higher. The market value, determined by the government’s circle rate or guideline value, is compared to the agreement value in the sale deed. The applicable stamp duty, expressed as a percentage, is then applied to the higher value.

For example, if the market value of a resale flat in Chennai is ₹50 Lakhs, but the agreement value is only ₹45 Lakhs, stamp duty will be applicable on ₹50 Lakhs at a rate of 7%. So stamp duty in this case will be ₹3.5 Lakhs. Besides, the registration fee is also charged. It is usually charged as 1% of the value of the property. The rates and rules change according to state; hence, they must be checked with the local jurisdiction.

In a flat resale transaction, two parties are involved – buyer and seller. So, who pays the resale flat stamp duty?

• Typically, in a resale flat transaction, the duty of paying the stamp falls upon the buyer.

• The stamp duty varies based on the instruments of registration. For example, the stamp duty levied on a sale deed and the stamp duty on a gift deed differ. 

• Capital gain tax on sale shall be borne by the seller; the levied stamp duty, in general, must be borne by the buyer.

• For exchange transactions, where the parties agree to exchange properties instead of a cash transaction, both parties are usually liable to pay stamp duty and registration charges on the properties they receive. Here, both parties are essentially buyers and sellers.

Stamp duty charges on resale flats are usually payable, but there are exemptions or concessions in certain states.

• For instance, Maharashtra offers a stamp duty exemption on resale of properties bought between one to three years of the original purchase.

• Some states also offer discounts for women and senior citizens, which may reduce the stamp duty load.

• These exemptions and discounts are state-specific and subject to change over time.

• Consult the local authorities to understand the current provisions and determine whether any benefit can be derived from them.

For paying stamp duty on a resale flat, the following documents are required as a general rule:

• Sale Deed or Conveyance Deed: A legal document indicates the sale and transfer of ownership from the seller to the buyer.

• Encumbrance Certificate: It will be issued as proof that the property has no pending dues or liabilities against it.

• Identification Proof: Original identification proofs, such as an Aadhaar card, passport, and voter ID card of both parties.

• Address Proof: The documents to be presented are utility bills, a ration card, and an Aadhaar card.

• PAN Card: A PAN card will be necessary.

• Photos: Passport-size photographs of the Purchaser and Seller.

• No Objection Certificate (NOC): It is needed for properties under housing society, especially in cases wherein there are already existing mortgages on the said property.

• Previous Title Deeds: Shows the chain of ownership on the property

• Receipts on Payment of Property Tax: Must indicate full payment on tax to date.

• Land Use Certificate: Needed if the land is used for other purposes.

• Building Plan Approvals: Required in case of a property under construction or modifications.

• Witness Proof: Witness details are needed during registration.

• Property Records: These are the land records which hold the details about the property.

• Original Deeds: Original documents that pertain to the transaction.

There are three modes for paying stamp duty.

• Physical Stamp Paper: This traditional method consists of buying non-judicial stamp papers from authorised sellers. Then, the transaction details are filled in on the stamp paper either with a pen or a typewriter. This system may be cumbersome because a few vendors are selling stamp papers, and at times, the quantum might be low, especially when the stamp amount is high.

• E-stamping: E-stamping is a secure online process introduced to counter the forgery of stamp papers. This is available in selected states. You can access the Stock Holding Corporation of India Limited (SHCIL) website, select your state, and complete the e-stamping process. The different forms of paying for the e-stamping procedure include debit/credit cards, cheques, demand drafts, and internet banking. Upon payment, an e-stamp certificate with a unique number called UIN is provided and can be checked for genuinity. E-stamping is convenient and doesn't allow duplicate e-stamps.

• Franking: Franking involves paying stamp duty through an authorised franking agent or a bank. The agent uses a franking machine to mark the document with an adhesive stamp, confirming the payment of stamp duty. The charges, a small percentage of the transaction value, are paid upfront. For example, in Bengaluru, franking charges are 0.1% of the agreement value and are adjusted against the stamp duty during the sale deed execution.

Resale property buyers do not need to pay Goods and Services Tax (GST). In the case of under-construction properties, GST applies directly as it is a work contract. As flats are immovable properties, the transaction for flat resale does not require payment of GST. Hence, no GST invoice is involved.

However, if the GST was paid during construction, then it may find a place in the overall cost of the property, and hence, buyers will face these indirectly, even if there is no GST invoice.

Property sale is valid only if the appropriate stamp duty is paid. Failure to pay this stamp duty can result in the following consequences:

• Stamp duty penalty may be levied as a percentage of the unpaid duty or as a fixed fine. These penalties are compounded over time.

• Other than penalties, the amount may carry interest, adding to the total debt amount.

• The authorities may take legal actions to recover the amount, potentially leading to official court charges.

• The property will be considered legally registered only if the stamp duty is duly paid. Otherwise, there will not be true ownership.

• Unpaid stamp duty can lead to problems in subsequent property transactions or while taking loans against the property.

• In extreme cases, authorities may even seize the property or levy a lien upon it until the pending dues are cleared.

Stamp duty collected from resale properties has several benefits for the buyer and the government. They are:

• Legal Validation: Stamp duty ensures proper legality in property transactions and reduces disputes between parties over ownership.

• Proof of Ownership: A stamped property document acts as proof of purchase and protects the buyer's rights.

• Government Revenue: Stamp duty is part of the state revenues, which help improve infrastructure and pay for public utilities.

• Prevent Fraud: Stamp duty is a mandatory requirement. So, it is a verifiable record of property transactions and reduces fraudulent sales.