Understanding Stamp Duty for Entrepreneurs
As an entrepreneur, a word you might have heard very often is ‘Stamp Duty’. As per the Stamp Act, practically every document and agreement you enter into with another party has to be stamped. Here, in this piece, we will be introducing you to the basic concepts surrounding Stamp Duty payment.
Why do we pay Stamp Duty?
We owe the concept of Stamp Duty and Stamp Paper to the British, who used Stamps as a way of raising revenue in the aftermath of war, when the treasury had been completely drained. The British themselves stole the idea from the Spaniards, who had used it to raise revenue as well.
Who levies Stamp Duty?
The Parliament (Central Government) has the power to levy stamp duty on the instruments specified in Article 246 read with Entry 91 of the Union List in Schedule VII. The Union list consists of items of national relevance.
The State Government has the power to levy stamp duty on instruments falling under Article 246 read with Entry 63 of the State List in Schedule VII. The State list consists of items of relevance to a particular state.
Your agreement has to be printed on non-judicial stamp paper provided by the State Government, and not by the Central Government.
How can I save Stamp Duty?
There are multiple ways to save on Stamp Duty. For instance, if you are transferring a property to a loved one, it makes sense to enter into a settlement deed wherein the property is settled in favour of that person, rather than a gift deed or a sale deed, where the Stamp Duty is very high.
While the Stamp Duty for a settlement deed is a fixed Rs. 10,000, the Stamp Duty on a gift deed can be as high as 5% of the value of the gift.
If you are entering into a Rental or Lease Agreement, you can enter into a 11 month rental agreement. Except in a few states like Maharashtra, a 11 month rental agreement need not be registered, and the Stamp Duty is also lower.
If you are entering into a Contract, there are a few ways to minimize your Stamp Duty liability. So for instance, unless it is necessary, do not include an indemnity clause. An indemnity clause in Bangalorewill mean that you have to pay an additional Stamp Duty as per Article 5 of the Karnataka Stamp Act.
If you are leasing out a commercial premises, (or even a residential premises), having a security deposit in Mumbai increases the Stamp Duty, since Stamp Duty has to be paid as a percentage of the value of the rent + the security deposit which is paid to the landlord.
All these suggestions and prescriptions are general guidelines and not set in stone. In many cases, paying additional Stamp Duty may not be avoidable, and you may not have any recourse but to pay it. But if possible, look for ways to minimize your liability. You might end up saving a considerable amount of money!
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