How to Legally Save on Stamp Duty in India – 5 Smart Tips
Damn! That's the sound most first time investors make when they discover how much stamp duty they'll need to pay on their property purchase. This often-overlooked tax can add thousands or lakhs to your property cost.
It can throw off your entire purchase plan and budget. Smart planning can help you avoid that. Fortunately, there are some legal ways we will walk you through to lower this tax burden and save your hard earned money.
Definition of Stamp Duty
Stamp duty is a tax levied by the government on all property transactions at the time of registration. It provides legal recognition to your property papers without which the property transfer is not valid. This tax is not avoidable and applies even to property transfers between family members, but in a family’s case it is significantly low.
We calculate it as a percentage of the property value or the circle rate (5-8%), whichever is higher. The buyer is responsible for paying it. So, the duty will keep increasing with the property value and can become a financial hurdle in your property-buying process. It is considered as one of the highest costing taxes in your property buying journey.
Here are 5 legal and legitimate tips that you can use to hack your way into smart savings for your next property purchase.
1. Women as Owners and Co-owners
On the basis of gender, the government provides tax concessions and rebates to promote property ownership among women. The stamp duty is usually lower by 1–2%. So, appointing a woman as the owner or co-owner can help you take advantage of this benefit. But be careful, as this could cause conflicts in the future regarding property ownership. For example, this duty in UP for women is 6%, as opposed to 7% for men.
2. Appeal to Review Circle Rates
Stamp duty is always paid on circle or the market rate whichever is higher. If the circle rate exceeds the market value of your property, you must pay more in stamp duty. But you can appeal to the sub-registrar to review the area's circle rates.
Section 47 of the Indian Stamp Act, 1899, states that you can apply for the circle rates of the area to be revised if the market rates are low. But your request can be denied, and you would have to pay the duty based on the circle rate in that case.
3. Gift Deed for Family Transfers
You can avoid paying large amounts in stamp duty if you are transferring property to a blood relative in your immediate family. It includes your parents, spouse and children. In such a case, the duty on the gift deed is set by the state government and sometimes can be as low as Rs 200.
The person gifting the property is responsible for paying the duty. For example, the stamp duty in Uttar Pradesh is set at 5000 for family property transactions.
4. Government Policies and Subsidies
First-time home buyers: First-time home buyers in some states are exempt from paying stamp duty or have lower rates set for them.
Senior citizens: Sometimes, the age of the property owner can influence a reduction in this duty. Senior citizens enjoy rebates and subsidies on this tax.
Affordable Housing Schemes: There are various affordable housing schemes under the central and state governments, like PMAY, DDA Housing schemes, etc. These schemes provide exemptions and reductions in stamp duty and registration charges for eligible low-income groups.
5. Tax Benefits
Under Section 80C of the Income Tax Act, when you take a home loan, you can include stamp duty as a cost of property buying. You can claim it as a deduction of up to 1.5 lakhs under principal repayment on your ITR form. This can help reduce the initial expenses of acquiring your dream home.
Apart from these ways, ensure that you make the stamp duty payment timely. Up to 200% in penalties can add up if you do not pay this tax on time. So, to keep your cost low, you should not avoid paying it. Many end up delaying this tax payment and end up paying a huge amount in penalties. Remember, with each monthly delay, a fine of 2% will add to the cost of your tax.
Conclusion
Why pay more than you should on stamp duty? Even though paying this tax in most cases is mandatory, the tips we mentioned can help you spend your money in a smart way. By choosing the right ownership structure and utilising government policies, rebates, and exemptions, you can be closer to your dream investment without breaking your budget.
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