assignment of contract stamp duty

INTRODUCTION

Stamp duties are imposed on instruments and not transactions. An instrument is defined as any written document and in general,- stamp duty is levied on legal, commercial and financial instruments. The person liable to pay stamp duty is set out in the Third Schedule of Stamp Act 1949. The Assessment and Collection of Stamp Duties is sanctioned by statutory law now described as the Stamp Act 1949.

TYPES OF DUTY

1. Ad Valorem Duty

The rate of duty varies according to the nature of the instruments and the consideration stipulated in the instruments or the market value of the property. The imposition of ad valorem duty (that is, according to the value) is on:

• Instruments of transfer (implementing a sale or gift) of property including marketable securities (meaning loan stocks and shares of public companies listed on the Bursa Malaysia Berhad), shares of other companies and of non-tangible property (e.g. book debts, benefits to legal rights and goodwill).
• Instruments creating interests in property (e.g. Tenancies and Statutory Leases)
• Instruments of security for monies, including instruments creating contracts for payment of monies or obligation for payment of monies (generally described as `Bond`)
• Certain capital market instruments (e.g. Contract Notes)

2. Fixed Duty

Duty is imposed without any relation to the consideration paid or amount stated in the instrument. The imposition of fixed duty is on:

• A number of other legal, commercial, mercantile or capital market instruments (e.g. Power or Letter of Attorney, Articles of Association of a Company, Promissory Notes, Policy of Insurance etc); and
• A duplicate or a subsidiary or a collateral instrument when it can be shown that the original or principal or primary instrument has been duly stamped.

INSTRUMENTS LIABLE TO STAMP DUTY

Instruments liable to stamp duty are those listed in the First Schedule of the  Stamp Act 1949 .

• More Blog Popular
• Who's Who Legal
• Instruct Counsel
• My newsfeed
• Save & file
• View original
• Follow Please login to follow content.

add to folder:

• My saved (default)

Register now for your free, tailored, daily legal newsfeed service.

Find out more about Lexology or get in touch by visiting our About page.

Stamp duty – novation or assignment – cancelled contract

The NSW Duties Act provides that where an agreement for the sale or transfer of dutiable property is cancelled, the agreement is not liable to duty if the Chief Commissioner is satisfied of certain matters. The Act also provides that if the duty has been paid then the Chief Commissioner must reassess and refund the duty if an application for a refund is made within a certain period of time.

In a recent case before the High Court, the vendor and the first purchaser had entered into a contract for sale of land (first contract) that was not subject to duty because of the corporate reconstruction relief. The vendor, the first purchaser and a second purchaser entered into a “Deed of Consent and Assignment” pursuant to which the first purchaser agreed to assign its rights under the first contract to the second purchaser, the vendor consented to the assignment and the second purchaser promised the vendor that it would perform the first purchaser’s obligations under the first contract and the vendor released and discharged the first purchaser from all liability under the first contract.  

A Deed of Termination was then entered into in order for the second purchaser to enter into a contract to purchase from the vendor more land than was the subject of the first contract. Although there was some confusion about this document it was accepted by the parties that this document purported to cancel the Deed of Consent and Assignment rather than the first contract.

The taxpayer made an application under the above provisions of the Duties Act for the Deed of Consent and Assignment to be assessed as not liable to duty because it was a cancelled contract.

The question then was whether or not the Deed of Consent or Assignment amounted to a novation or an assignment of the first contract. If it amounted to an assignment of the first contract, the document was dutiable because the document would have been a sale or transfer of dutiable property. However if the document was a novation of the first contract then the document was not dutiable because there was no sale or transfer of dutiable property.  

The High Court stated a number of key principles in determining whether there is a novation or an assignment. French CJ, Crennan, Keifel and Bell JJ stated the following principles:  

•  a novation, in its simplest sense, refers to a circumstance where a new contract takes the place of the old,
• it is not correct to describe novation as involving the succession of a third party to the rights of the purchaser under the original contract because such a description under the common law comes closer to the effect of a transfer of rights by way of assignment, 
• it is not correct to describe a third party undertaking the obligations of the purchaser under the original contract as a novation,
• the effect of a novation is upon the obligations of both parties to the original, executory, contract,
• the enquiry in determining whether there has been a novation is whether it has been agreed that a new contract is to be substituted for the old and the obligations of the parties under the old agreement are to be discharged.  

Their Honours held that the Deed of Consent was a novation because the deed contained the elements necessary for the discharge of the first contract and the substitution of a new contract. It did so because under the Deed of Consent:

• the vendor released and discharged the first purchaser from its obligations under the first contract,
• this release and discharge of the first purchaser’s obligations amounted to a renunciation of the vendor’s right to call upon the first purchaser for performance as purchaser under the first contract or to sue the first purchaser for specific performance of the first contract or for damages for its breach,
• the first purchaser was permitted not only to extricate itself from further obligations under the first contract, but also to be restored to its pre-contractual position, by the repayment of monies advanced by it to the vendor and the reimbursement of deposit monies by the second purchaser,
• it was necessarily implied that the vendor would convey the land and improvements the subject of the first contract to second purchaser upon tender by it of the purchase price,
• therefore the vendor’s prior obligation to convey to the first purchaser was to be regarded as extinguished by reason of the later implied obligation to convey to the second purchaser, the latter being inconsistent with the continuance of the former.  

Hayne J agreed generally with their Honours’ reasoning.  

It should be noted that the liability for duty in relation to a cancelled contract is dependent upon the Chief Commissioner being satisfied of certain things including that that the agreement was not cancelled to give effect to a sub-sale. This was not an issue in these proceedings. The Chief Commissioner has issued a public ruling on when he will be satisfied that there was no cancellation to give effect to a sub-sale to which regard should be had in every case.

Filed under

• New South Wales
• Real Estate
• Piper Alderman

Popular articles from this firm

In a nutshell: claiming damages in australia *, blockchain bites: bitcoin etfs growing on australian markets, asic appeals block earner penalty decision, australian blockchain week quotes, stand with crypto uk policy proposals, sec closes file on ethereum 2.0, blockchain hacking in the grey zone *, defences to copyright infringement - what is a “service for the commonwealth or state” *, australian consumer law – lessons from across the tasman *, blockchain bites: anz and chainlink forging blockchain real world asset strength, bear market spirit: latest from token2049, mica stablecoins requirements on the horizon, crypto comments from gensler’s sec testimony, stoner cats nft called securities by sec, iosco consultation on 2023 defi report, personal transaction data dive deep in vitalik’s privacy pools, us cftc targets defi platforms, rekt test: building safety via security *.

If you would like to learn how Lexology can drive your content marketing strategy forward, please email [email protected] .

Related practical resources PRO

• How-to guide How-to guide: The legal framework for resolving disputes in England and Wales (UK)
• Checklist Checklist: Considerations prior to issuing court proceedings (UK)
• Checklist Checklist: Managing a dawn raid

Related research hubs

Cookies on GOV.UK

We use some essential cookies to make this website work.

We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services.

We also use cookies set by other sites to help us deliver content from their services.

You have accepted additional cookies. You can change your cookie settings at any time.

You have rejected additional cookies. You can change your cookie settings at any time.

Bring photo ID to vote Check what photo ID you'll need to vote in person in the General Election on 4 July.

beta This part of GOV.UK is being rebuilt – find out what beta means

• Business tax

Stamp Duty Land Tax Manual

Sdltm09845 - sdlt - higher rates for additional dwellings: transitional rules & the wales act 2014.

Where applicable, the higher rates apply to all purchases of dwellings that complete on or after 1 April 2016.

Transitional rules provide that the higher rates do not apply where a contract has been:

• entered into and substantially performed before 26 November 2015, or

entered into before 26 November 2015 and not amended after that date The transitional rules do not apply where contracts were entered into before 26 November 2015 if:

• there is any variation of the contract or assignment of rights under the contract on or after 26 November 2015.
• the transaction is effected in consequence of the exercise on or after 26 November 2015 of any option, right of pre-emption or similar right;
• on or after 26 November 2015 there is an assignment, sub-sale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance to him by virtue of FA16 s128(7)

A variation of a contract would include a change to:

• the land being purchased,
• the parties to the contract, or to the contractual consideration or
• in an agreement for a lease, to the term length

However some changes - for example, to prescribed colour schemes or to the contractual completion date - may be too insignificant to amount to a variation.

Reservation fees for off-plan purchases

Where the purchaser pays either a reservation fee or an option to purchase fee in relation to their purchase of a dwelling, for example, where they are buying a dwelling on a new development that has not yet been built or completed, this would not generally amount to the exchange of formal contacts between the buyer and seller. The transitional rules will not apply if such a fee were paid on or before 25 November 2015, but contracts had not been exchanged.

Mr A exchanged contracts with a developer on 27 October 2015 on the purchase of 4 flats which he intends to rent out. He also owns a property jointly with his wife which is the family home. On 16 January 2016 Mr A varied the contract to add his wife as a joint purchaser of the 4 flats. Mr A will not be able to benefit from the transitional provisions as the contract was varied after 25 November 2015.

Mr B exchanged contracts in October 2015 to purchase a flat which is due for completion in January 2017. Mr B owns a number of buy-to-let properties and intends to add this one to his portfolio. In May 2016 the contract was varied to add his sister Ms L as a joint purchaser of the flat.

Transitional provisions provide that where a contract was entered into before 26 November 2015, but is not completed until on or after 1 April 2016, the higher rates do not apply provided the contract is not varied after that date. As the contract was varied in May 2016 to add MS L, the transitional provisions will not apply and, as Mr B owns other residential property, the higher rates will be due on completion of the purchase.

The advent of the Wales Act 2014 means that transactions in property covered by section 16(2) of that Act will cease to be subject to the higher rates of SDLT. Schedule 4ZA will be amended by virtue of paragraphs 13, 14(2) and (5) and 16(4) of Schedule 11 to the Finance Act 2018 to recognise this.

Condition D’s requirement regarding a former main residence will still include disposal of main residences situated in Wales [Paras 14(3) and 16(4) of Schedule 11 to the Finance Act 2018].

Para references are to paragraphs in Schedule 4ZA of the Finance Act 2003.

Is this page useful?

• Yes this page is useful
• No this page is not useful

Help us improve GOV.UK

Don’t include personal or financial information like your National Insurance number or credit card details.

To help us improve GOV.UK, we’d like to know more about your visit today. Please fill in this survey (opens in a new tab) .

• Skip to content
• Skip to navigation

Revenue is currently the target of a SMS scam that is using Revenue NSW branding. This is causing higher call volumes. Customers can confirm and review their fines online via myPenalty , myEnforcement Order or their MyserviceNSW account . Some online services will be unavailable this weekend.

• Make a payment
• Payroll tax
• Property tax

Transfer duty

• Gaming and wagering
• Health insurance levy
• Insurance duty
• Parking space levy
• Foreign buyers and land owners
• Motor vehicle duty
• Passenger service levy
• Emergency services levy
• Income tax equivalent regime

Gig workers can be considered independent contractors or employees, or sometimes the platform operator is classed as an employment agent. It depends on the business structure and the workers’ employment relationship. Click the arrow to read the new ‘Gig economy businesses’ page.

• Advocates and sponsors
• Support and community services

Pay now or learn about your options to manage your fines and fees.

• First Home Buyers Assistance Scheme
• First Home Owner (New Homes) Grant
• Shared Equity Home Buyer Helper
• Electric Vehicle Rebate
• Electric Vehicle Stamp Duty Refund
• Previous schemes

From home buyer to electric vehicle, we issue and administer a range of grants and schemes.

• Search and make a claim
• Proof of ownership
• Return unclaimed money

When you buy a property or someone transfers ownership of a property to you in NSW, you generally must pay transfer duty (stamp duty).

Introduction to transfer duty.

You must pay transfer duty – once known as stamp duty – in NSW when you buy:

• property , including your home or holiday home
• an investment property
• vacant land or a farming property
• commercial or industrial properties, or
• a business , which includes land.

You must also pay transfer duty when you acquire land, or an interest in land, without buying it. For example:

• a declaration of trust
• a transaction effecting a change in the beneficial ownership of a property.

In some circumstances, you may be eligible for a concession or exemption from transfer duty, such as:

• when you are a beneficiary of a deceased estate , or
• the transfer is between a married couple or de facto couple .

Surcharge purchaser duty

From 21 June 2016, if you are considered a foreign person and are acquiring residential-related property NSW, you must pay surcharge purchaser duty.

Surcharge purchaser duty is calculated on the dutiable value and is paid in addition to the transfer duty payable on the acquisition of residential-related property.

Refer to Surcharge purchaser duty for more information.

When to pay transfer duty

You must pay transfer duty within three months of signing a contract for sale or transfer, except in the case of off-the-plan purchases .

If you buy off-the-plan and you intend to live in the property, you may be able to defer your transfer duty liability for up to 12 months.

Calculating transfer duty

Use our online calculator to work out how much transfer duty you’ll need to pay.

Transfer duty calculator

You must pay transfer duty based on the property’s sale price or its current market value, whichever is higher.

• We charge a standard transfer duty rate, as well as a premium duty rate, for residential properties worth more than $3 million.
• Each year the threshold amounts for standard transfer duty and premium duty rates are adjusted in line with movements in the Sydney Consumer Price Index (CPI).
• Due to updated threshold amounts, the 2021/22 year has two sets of transfer duty calculations ( news and media release ).
• If the buyer and seller are related or associated, or you’re not transferring the whole property, the property must be valued by a suitably qualified person.

If you are buying a residential property in NSW, use the residential property buyer tool to find out the taxes and duties you may need to pay, as well as exemptions and grants that you are entitled to receive.

Standard transfer duty calculations

Premium transfer duty calculations

The premium rate applies to residential properties only. If your property is worth more than $3 million (as per the premium table above) and part of it is used for business, we’ll only take into account the part that’s used for residential purposes when applying the premium transfer duty threshold.

For large properties, the premium transfer rate is calculated only on the first two hectares of land you own, as a proportion of your overall parcel of land. The remainder of your property will be charged at the standard rate.

For example:

• your 10 hectare property is worth $20 million
• two hectares is 20 per cent of the total area
• 20 per cent of the value is $4 million
• you’ll pay the premium rate on the dutiable value above $3 million (as per the premium table above)
• the remaining portion will be charged at the rate for property worth over $1 million.

Pay your transfer duty

Your solicitor or conveyancer can lodge an application for assessment on a contract for sale or transfer of land on your behalf. They’ll also arrange for duty to be paid. This is typically done as part of the settlement process. They'll also know if you are entitled to any exemptions or concessions.

If you’re not using a solicitor or conveyancer, you must lodge an application and pay duty yourself .

You can apply for a refund (PDF, 259 KB) if you’ve paid transfer duty on a contract for sale or transfer that doesn’t go ahead.

You must apply within:

• five years of the transfer duty assessment being made, or
• 12 months after the agreement is cancelled.

When applying for a refund, we’ll ask you for:

• the original contract for sale or transfer
• evidence the agreement has been cancelled – eg a photocopy of the Deed of Rescission (signed by both parties) or letters from both parties confirming the agreement has been cancelled
• a copy of the original purchaser declaration.

If you don’t pay your transfer duty on time, you’ll be charged interest on the amount you owe . We may also charge additional penalties.

You can lodge an objection or request a reassessment if you’re dissatisfied with an assessment or decision we’ve made.

Business transactions

From 1 July 2016, the NSW government abolished transfer duty on the sale of business assets , including intellectual property, goodwill and statutory licences.

However, you still must pay transfer duty on any land the business holds. Duty will be assessed on the value of the land, including leasehold interests, fixtures and goods.

If you're transferring or assigning a lease not connected to any business assets, complete the declaration for urgent stamping of transfers and assignment of leases form (PDF, 243.7 KB) .

Other transactions

Other transactions that may require transfer duty include:

• establishing a trust over property in NSW
• acknowledging a trust
• granting of an option
• transferring an option to purchase land in NSW
• creation of a life estate
• foreclosing a mortgage on property in NSW.

Read more about other occasions when transfer duty may apply .

• Previous Land tax
• Back to top
• Next Royalties

• Practical Law

SDLT: overview

Practical law uk practice note w-006-4233  (approx. 34 pages), get full access to this document with a free trial.

Try free and see for yourself how Practical Law resources can improve productivity, efficiency and response times.

About Practical Law

This document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more.

650+ full-time experienced lawyer editors globally create and maintain timely, reliable and accurate resources across all major practice areas.

83% of customers are highly satisfied with Practical Law and would recommend to a colleague.

81% of customers agree that Practical Law saves them time.

• Real Estate Finance and Investment
• Companies and Groups Tax
• SDLT and LTT
• Insurance and taxation
• Land acquisition and disposals

Stamp Duty Cayman Islands

New – stamp duty cayman islands.

The Cayman Islands government has just released new INCREASED Stamp Duty concessions in a very special way to entice FIRST TIME Caymanian purchasers to climb on the property ladder in Cayman.

BUT the big news here is an extra incentive for SECOND TIME Caymanian purchasers (Caymanians whom already own a first home) giving them the opportunity to now purchase a 2nd home or Land offering them REDUCED Stamp Duty costs to do so. With up to 50% off Stamp Duty costs to purchase a 2nd Cayman property.

***ALSO now a GROUP of Caymanian purchasers between 2 -10 individuals can now buy Cayman Islands property with NO Stamp Duty Costs.

Please see the breakdowns BELOW and don’t forget to check out the important aspects of which areas are not included in these Stamp Duty concessions in our table BELOW. Any further questions or thoughts feel free to reach out to us anytime Contact Us

*** (For other purchasers of Cayman Islands property the stamp duty rate on all three Cayman Islands is 7.5% on the purchase price (also termed the consideration) or the market value of the property, whichever is higher . Stamp duty is calculated in Cayman Islands currency).

1. first time caymanian purchaser stamp duty for property  &  raw land.

2. 2ND TIME Caymanian Purchaser Stamp Duty for PROPERTY  &  RAW LAND

4. IMPORTANT – Stamp Duty Concessions for Caymanians ONLY apply to certain areas of the Cayman Islands

Recent Properties

• Law of torts – Complete Reading Material
• Weekly Competition – Week 4 – September 2019
• Weekly Competition – Week 1 October 2019
• Weekly Competition – Week 2 – October 2019
• Weekly Competition – Week 3 – October 2019
• Weekly Competition – Week 4 – October 2019
• Weekly Competition – Week 5 October 2019
• Weekly Competition – Week 1 – November 2019
• Weekly Competition – Week 2 – November 2019
• Weekly Competition – Week 3 – November 2019
• Weekly Competition – Week 4 – November 2019
• Weekly Competition – Week 1 – December 2019
• Sign in / Join

Stamp duty payable on a contract : an overview

This article is written by Sanjana Jain , from Guru Gobind Singh Indraprastha University, Delhi. The article talks about what stamp duty is, how it is calculated, and on which instruments it is imposed. Further, the article also talks about stamp duty on E-agreements.

Table of Contents

Introduction

The economy of every country is based on agreements and contracts in which two parties agree on certain expressed terms and conditions which are laid down in black and white, which when signed by both the parties involved, becomes binding. Agreements being the soul and heart of businesses, need to be enforceable by law. They will be enforceable by law if they satisfy the provisions mentioned under the Indian Stamp Act, 1899 read with the Registration Act, 1908. Therefore, they should be duly stamped for being valid in the eyes of law.

According to the Indian Stamp Act, 1889, stamp duty must be paid in order to record and keep track of all the transactions. Thus, stamp duty is like proof that the deal has taken place between the parties. It is a legal entity that is valid as evidence in case of disputes in a court of law. In 2016, the amendment for the Indian Stamp Act came in the form of the Recovery of Debt Laws Bill, 2016 . Thus, this article will let you know everything about stamp duty.

What is stamp duty

According to Black’s Law Dictionary, stamp duty means an additional charge levied on certain legal documents by purchasing a stamp to be placed on said document. So from the above definition, it can be interpreted that stamp duty is a charge, it can be either fixed or variable, which is levied on certain legal documents, which means that certain documents can be excluded by law from stamping and stamp duty can only be paid by purchasing a stamp and not by any other means.

Mere physical transfer of property is not valid in the eyes of law, in order to make such a transfer valid, the buyer has to pay stamp duty, which will act as proof that purchase has occurred. Therefore, stamp duty is a government tax paid at the time of transfer of property, which makes the transfer certificate valid in the court of law.

Though the rate of stamp duty varies from state to state, the general underlying principle behind the duty remains the same. Stamp duty is a legal tax that has to be paid in full for the completion of a transaction. Generally, the stamp duty is paid by the buyer, in some cases, the buyer and seller decide to split the stamp duty as per an earlier signed agreement.

The law on stamping and registration

Stamp duty in India is governed by two legislations, i.e a stamp Act legislated by the Parliament and a stamp Act legislated by the state legislature. According to Article 246 read with Schedule VII of the Indian Constitution , Parliament can enact laws relating to rates of stamp duty of bill of exchange, cheques, promissory notes, bill of lading, letter of credits, policies of insurance, transfer of shares, debentures, proxies, and receipts whereas state legislature can legislate on all those matters which are not mentioned above.

Under Section 3 of the Parliament Legislation (the Indian Stamp Act) stamp duty can be imposed on the following document:

• All the documents mentioned in the First Schedule of the Parliament Legislation;
• Every bill of exchange payable otherwise on-demand or promissory note drawn or made out of India and accepted or paid or presented for acceptance or payment, or endorsed, transferred, or otherwise negotiated; and
• All instruments mentioned in First Schedule, which have not been previously executed by any person, are executed out of India, related to any property, or to any matter or thing which has been done in  India and is received in India.

Under Section 3 of the  Indian Stamp Act, 1899 , stamp duty will not be imposed on the following documents:

• Any instrument which is performed by or on behalf of the government in cases, but for this exemption, the duty chargeable in respect of such instrument will be paid by the Government;
• Any instrument for the purpose of sale, transfer or other disposition, either absolutely or byway or mortgage or otherwise, of any ship, or vessel registered under the Merchant Shipping Act, 1894; and
• Any instrument which is executed by, or, on behalf of, the developer, or unit or connection with the carrying out of purposes of the special economic zone.

Under   Section 3 of the State Legislation (Karnataka Stamp Act, 1957) , stamp duty will be imposed on the following documents:

• All the instruments mentioned in the Schedule under the state legislation, not having been executed by any person, is executed within the territories of the State of Karnataka on; and
• All the instruments mentioned in the Schedule under the state legislation which, not having been previously executed by any person, is executed out of the State of Karnataka relates to any property situated, or to any matter or thing which is done in the territories of the State of Karnataka and is received in the territories of the State of Karnataka.

Under Section 3 of the State Legislation, stamp duty will not be imposed on the following documents:

• Any instrument, which is performed by, or on behalf of, the Karnataka government in cases where, but for this exemption,  the duty chargeable in respect of such instrument is paid by the Karnataka government; and
• An instrument for sale, transfer, or other disposition, either absolutely or by way of mortgage, of any ship or vessel, which is duly registered under the Merchant Shipping Act, 1958.

Points to remember regarding stamp duty

• Stamp duty is valid for six months.
• Whenever on foreign documents stamp duty is paid, it is valid for three months. 
• Unless stamp duty is paid, the agreement will not be enforceable in court.
• Non-payment of the required stamp duty is a criminal offence, as per the Indian Penal Code.
• Delay in payment of stamp duty can make the individual liable to pay a fine ranging from 2% to 200% of the total payable amount. 
• The stamp duty is to be made by the purchaser or buyer and not the seller. 

Stamp duty calculator

Generally, it is easy to calculate stamp duty according to the rates provided by the Indian Stamp Act or the State Stamp Act. But sometimes, the person paying the duty is not able to calculate the correct stamp duty and ask for help from the collector of Stamps.

So, for calculating the stamp duty the first thing is to identify in which category the document or instrument falls under. For the purpose of stamp duty calculation, there are 3 categories of transaction:

In the first category, the charges on the stamp duty remain fixed regardless of what value is mentioned in the document or instrument. For example Deed of adoption, Article of Clerkship, Appointment in Execution of Power, Deed of apprenticeship, Award, Cancellation Deed, Duplicate, Charter Party, Copy of Extracts, Bond of indemnity, Power of Attorney, etc.

In the second category, the charges of the stamp duty are dependent upon the value mentioned in the document. For example Deed of mortgage, Agreement for lease, Deeds of title, Security Bond, Hypothecation Deed, Article of Association, etc.

In the third category, the charges of the stamp duty are dependent either on true market value or on the value mentioned in the document, whichever is higher. For example, Agreement for sale, agreement for the development, Gift exchange, Deed of partnership,  Transfer of Immovable Property, Deed of trust, Partition, etc.

Liability of paying stamp duty

Liability can be imposed by agreement on either of the parties of the agreement for payment of the stamp duty. Section 29 of the parliament legislation provides the power to the parties of agreement to decide who among the parties of the agreement shall be liable to pay the stamp duty imposed on the concerned agreement, which, in absence of an agreement, imposes on certain persons the liability of paying stamp duty. Similarly, Section 30 of the state legislature provides a choice to the parties of the agreement to decide who among the parties of the agreement shall be liable to pay the stamp duty imposed on the concerned agreement and which in absence of any such agreement, impose on a particular party the liability of paying stamp duty.

It is logical to pass the burden of paying the stamp duty on the party who is paying the consideration under the agreement, as stamp duty is the cost to the subject matter of the agreement.

Penalty for non-compliance

Both the parliament and state legislature provide that an unstamped or inadequately stamped document will not be enforceable in a court of law as evidence. The following provisions highlight the effect of an inadequately stamped document:

• Section 33 of the state legislature and Section 33 of the parliament legislature, provides that if it came into notice of an authorized person that any instrument or agreement is inadequately stamped, then such authorized person can take in custody such agreement or instrument.
• Section 34 of the state legislature and Section 35 of the parliament legislature, provides that an inadequately stamped instrument or agreement is not enforceable in a court of law as evidence and such instrument or agreement is subject to certain exceptions as mentioned under the section.
• Section 35 of the state legislature and Section 36 of the parliament legislature, provides that if an inadequately stamped instrument or agreement is recorded as evidence it will not be enforceable in a court of law unless the legislature thinks that such an instrument bears sufficient stamp, and permit enforceability of such instrument on payment of such charge as deems fit.

Whether all agreements should be on stamp paper

No, agreements can be made on both the stamp paper and on non-stamp paper also. According to the Indian Contract Act, 1872 an agreement can be enforceable if it fulfils all the essential conditions like offer, acceptance, lawful object, consideration, competent parties, and free consent. It is important to note that in India, even oral agreements are valid and enforceable under the contract Act, provided they fulfil all the essential conditions of a contract. The Indian Contract Act, 1872, does not contain any provision that makes stamping of agreement compulsory or declaring any unstamped agreement as invalid or unenforceable. So from this, it is clear that for an agreement to be valid, stamping is not necessary and even without a stamp they are valid and enforceable.

Stamp duty implication on e-agreement

Under the Indian Stamp Act, there is no provision that deals with electronic agreements or stamp duty payable on such agreements.

Most of the state stamp legislation does not have any provision related to electronic records except some like in Maharashtra the Maharashtra Stamp Act, 1958 (“MSA”) mentions electronic records in the definition of  “instrument’ . States like Delhi, Uttar Pradesh, Karnataka, Gujarat, and Rajasthan mention electronic records within the definition of the term “instrument”, thus imposing stamp duty on electronic records.

Stamp duty is payable to the state government for recognizing an agreement by the parties to an agreement. It is the revenue for the state government, even if it is levied by the central government and if any agreement is inadequately stamped, the state government has the power to impound or nullify the effect of such an agreement.

• http://dpal.kar.nic.in/34%20of%201957%20(e).pdf
• https://itatonline.org/articles_new/stamp-laws-in-india-an-overview-with-recent-amendments/#:~:text=Under%20the%20Maharashtra%20Stamp%20Act,lading%2C%20
• https://legislative.gov.in/sites/default/files/A1899-2.pdf

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on  Instagram  and subscribe to our  YouTube  channel for more amazing legal content.

RELATED ARTICLES MORE FROM AUTHOR

Why do contract drafting skills matter, unilateral contracts : definition, examples, advantages and more, contracts and the doctrine of restitution : an overview, leave a reply cancel reply.

Save my name, email, and website in this browser for the next time I comment.

3-Day Bootcamp on How to get a law firm job

Register now

Thank you for registering with us, you made the right choice.

Congratulations! You have successfully registered for the webinar. See you there.

• [email protected]

Stamp Duty on Debt Assignment

Home | Knowledge Center | Thought Papers Stamp Duty on Debt Assignment

13th Feb, 2018

bbbbb Lorem ipsum dolor sit

Introduction

Assignment of debt is one of the most common forms of transactions in financial markets. It essentially entails transfer of a debt from a creditor (assignor) to a third-party (assignee). One of the biggest challenges faced in debt assignment transactions in India is the significant stamp duty implication on the deed of assignment. Considering the volume of assignment transactions undertaken generally by banks and financial institutions or by asset reconstruction companies (“ ARCs ”), the stamp duty levied becomes a significant cost in such transactions. The Constitution of India (“ Constitution ”) confers upon the Parliament and each State Legislature the power to levy taxes and other duties. The subjects on which the Parliament or a State Legislature or both can legislate are specified in the Seventh Schedule of the Constitution. The Seventh Schedule is divided into 3 (three) lists:

• Union List;
• State List; and
• Concurrent List.

The Parliament has the exclusive power to legislate on the subjects enumerated in the Union List. The State List enumerates the subjects on which each State Legislature can legislate and such laws operate within the territory of each State. The Parliament, as well as the State Legislatures, have the power to legislate over the subjects listed in the Concurrent List.

The entry pertaining to levy of stamp duty in the Union List is as follows: -

“91. Rates of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts.”

The entry pertaining to levy of stamp duty in the State List is as follows: -

“63. Rates of stamp duty in respect of documents other than those specified in the provisions of List I with regard to rates of stamp duty.”

The entry pertaining to levy of stamp duty in the Concurrent List is as follows: -

“44. Stamp duties other than duties or fees collected by means of judicial stamps, but not including rates of stamp duty.” [emphasis supplied]

From the aforementioned entries, it is clear that the power to legislate on the rate of stamp duty chargeable on instruments of debt assignment (since it is not covered under Entry 91 of the Union List) is with the State Legislature. However, the power to determine whether stamp duty can be charged or not on a specific instrument is in the Concurrent List. In this regard, it may be noted that pursuant to the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Act, 2016 (“ Amendment Act ”), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“ SARFAESI ”) and the Indian Stamp Act were amended to provide for an exemption from stamp duty on a deed of assignment in favour of an ARC.

As mentioned above, the power to legislate on whether stamp duty is payable or not on an instrument is in the Concurrent List. Therefore, the Parliament has the power to legislate on the aforesaid subject.

Pursuant to the Amendment Act, section 5(1A) was inserted in SARFAESI which provides that any agreement or document for transfer or assignment of rights or interest in financial assets under section 5(1) of SARFAESI in favour of an ARC is not liable to payment of stamp duty.

In several States, notifications have been issued for remission and/ or reduction of stamp duties on debt assignment transactions. For instance, in Rajasthan, the stamp duty chargeable on any agreement or other document executed for transfer or assignment of rights or interests in financial assets of banks or financial institutions under section 5 of SARFAESI in favour of ARCs 1 has been remitted. Further, in Maharashtra, the stamp duty on instrument of securitization of loans or assignment of debt with underlying security has been reduced to 0.1% (zero point one percent) of the loan securitized or the debt assigned subject to a maximum of Rs. 1,00,000 (Rupees one lac) 2 .

Certain State Governments, such as those of Rajasthan and Tamil Nadu have reduced the stamp duty based on the nature of the financial asset being assigned. In Rajasthan, the stamp duty has been reduced for assignment of standard assets whilst in Tamil Nadu, the stamp duty has been reduced for assignment of non-performing assets and assignment in favour of ARCs.

This paper discusses a recent decision by the Allahabad High Court in the case of Kotak Mahindra Bank Limited v. State of UP & Ors. 3 (“ Kotak case ”), where it was held that an instrument of assignment is chargeable with stamp duty under Article 62(c) (Transfer) of Schedule 1B of the Indian Stamp Act, as applicable in Uttar Pradesh (“ UP Stamp Act ”), as opposed to Article 23 (Conveyance) of Schedule 1B of the UP Stamp Act.

The stamp duty payable in various States under Article 23 or the relevant provision for conveyance is on an ad valorem basis whereas the stamp payable under Article 62(c) or relevant provision for transfer of interest secured, inter alia, by bond or mortgage deed, is a nominal amount. For instance, in Uttar Pradesh, the stamp duty payable under Article 62(c) is Rs. 100 (Rupees one hundred).

Decision in the Kotak case

In the Kotak case, Kotak Mahindra Bank Limited (“ Kotak ”) had purchased and acquired certain loans from State Bank of India (“ Assignor ”) along with the underlying securities.

The question for consideration before the full bench of the Allahabad High Court was whether the deed executed by the applicant with the underlying securities would be chargeable with duty under Article 62(c) or Article 23 of Schedule 1B of the UP Stamp Act.

The court observed that in order to determine whether an instrument is sufficiently stamped, one must look at the instrument in its entirety to find out the true character and the dominant purpose of the instrument. In this case it was observed that the dominant purpose of the deed of assignment entered into between Kotak and the Assignor (“ Instrument ”), was to transfer/ assign the debts along with the underlying securities, thereby, entitling Kotak to demand, receive and recover the debts in its own name and right.

Article 11 of Schedule 1B of the UP Stamp Act provides that an instrument of assignment can be charged to stamp duty either as a conveyance, a transfer or a transfer of lease. The court observed that since the Instrument was not a transfer of lease, it would either be a conveyance or a transfer.

The court referred to the definition of conveyance in the UP Stamp Act, which reads as follows:

““ Conveyance ”. — “Conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for [by Schedule I, Schedule IA or Schedule IB] [as the case may be];” [emphasis supplied]

The court held that the term conveyance denotes an instrument in writing by which some title or interest is transferred from one person to other and that the use of the words “on sale” and “is transferred” denote that the document itself should create or vest a complete title in the subject matter of the transfer, in the vendee. In this case since under the Instrument, the rights of the Assignor to recover the debts secured by the underlying securities had been transferred to Kotak, it was held that the requirement of conveyance or sale cannot be said to be satisfied.

The court further observed that debt is purely an intangible property which has to be claimed or enforced by action and not by taking physical possession thereof, in contrast to immovable and movable property. Where a transaction does not affect the transfer of any immovable or movable property, Article 23 of Schedule 1B cannot have any applicability.

The court’s view was that since debt along with underlying securities is an interest secured by bonds and/ or mortgages, transfer of such debt would be chargeable under Article 62(c).

The court further clarified that under the Instrument, merely the right under the contract to recover the debts had been transferred. Since the borrower(s) had never transferred the title in the immovable property given in security to the Assignor, the Assignor could merely transfer its rights i.e. mortgagee's rights in the property to recover the debts. It was further observed that the Assignor never had any title to the underlying securities and that it merely had the right to enforce the security interest upon default of the borrower(s) in repayment. The right transferred to Kotak was primarily the right to recover the debts, in accordance with law, by proceeding against the underlying security furnished by the bonds/ mortgage deed(s).

Therefore, the court held that the Instrument was chargeable with stamp duty under Article 62(c) of Schedule 1B of the UP Stamp Act.

Whilst coming to the conclusion that assignment of debt would not constitute a conveyance, the court referred to the definition of conveyance to state that debt is an intangible property which has to be claimed or enforced by action and not by taking physical possession thereof, in contrast to immovable and movable property.

In this regard, it may be noted that there are various judicial precedents 4 , where it has been held that an interest (including mortgage interest) in immovable property is itself immovable property.

However, even assuming assignment of debt with underlying securities over immovable property amounts to a conveyance, it

may be pertinent to refer to the definition of conveyance in the UP Stamp Act which specifically excludes a conveyance which is otherwise provided for by the Schedule to the UP Stamp Act.

Article 62(c) of the UP Stamp Act reads as follows:

“62. Transfer (whether with or without consideration) – … (c) of any interest secured by a bond, mortgagedeed or policy of insurance--”

In view of the above, transfer of any interest secured by a mortgage deed, which is covered under Article 62(c), would be excluded from the meaning of conveyance and would be chargeable to stamp duty under Article 62.

In this regard it may be pertinent to refer to the definitions of ‘bond’ and ‘mortgage deed’ under the UP Stamp Act, which is as follows:

“" Bond " includes

(a) any instrument whereby a person obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;

(b) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and

(c) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another

“" Mortgage-deed ". — "mortgage-deed" includes every instrument whereby, for the purpose of securing money advanced, or to be advanced, by way of loan, or an existing or future debt, or the performance of an engagement, one person transfers, or creates, to, or in favour of another, a right over or in respect of specified property;”

In view of the above, where a debt secured by a bond or a mortgage deed is assigned under a deed of assignment, the stamp duty payable on such deed of assignment will be under Article 62(c) of the UP Stamp Act or corresponding provisions of the Stamp Act of other States.

However, in cases of unsecured loans or loans secured by an equitable mortgage (where there is no mortgage deed), the deed of assignment would attract ad valorem stamp duty chargeable on conveyance, since the same will not get covered under Article 62(c) or similar provisions in other states.

The market practice until now has been to stamp the deed of assignment of debt under the relevant article for Conveyance in the applicable Stamp Act. In fact, in States such as Maharashtra, the State Government has issued notifications for reduction of stamp duty on a deed of assignment under the article for Conveyance.

The judgment passed by the Allahabad High Court in the Kotak case may prove to be a welcome step in reducing the incidence of stamp duty on debt assignment transactions. However, it would need to be seen whether in other States a similar view is taken by stamp duty authorities.

This update has been prepared by Aastha (Partner), Debopam Dutta (Managing Associate) and Abhay Jain (Associate).

1 Notification No. F4(3)FD/Tax/2017-110 dated March 8, 2017 issued by Finance Department (Tax Division) Government Of Rajasthan.

2 Notification No.Mudrank-2002/875/C.R.173-M-1 dated May 6, 2002 issued by Revenue & Forests Department, Government of Maharashtra.

3 Reference Against MISC. Acts. No. 1 of 2016, order dated February 9, 2018.

4 Bank of Upper India Ltd. (in liquidation) v. Fanny Skinner and Ors., AIR 1929 All 161. See also Prahlad Dalsukhrai and Ors. v. Maganlal Muljibhai Tewar, AIR 1952 Bom 454 and Harihar Pandey v. Vindhayachal Rai and Ors., AIR 1949 Pat 170.

Our Offices

11, 1st Floor, Free Press House 215, Nariman Point Mumbai – 400021

+91 22 67362222

7A, 7th Floor, Tower C, Max House, Okhla Industrial Area, Phase 3, New Delhi – 110020

+91 11 6904 4200

68 Nandidurga Road Jayamahal Extension Bengaluru – 560046

+91 80 46462300

Binoy Bhavan 3rd Floor, 27B Camac Street Kolkata – 700016

+91 33 40650155/56

The rules of the Bar Council of India do not permit advocates to solicit work or advertise in any manner. This website has been created only for informational purposes and is not intended to constitute solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work in any manner. By clicking on 'Agree' below, you acknowledge and confirm the following:

a) there has been no solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work through this website;

b) you are desirous of obtaining further information about us on your own accord and for your use;

c) no information or material provided on this website is to be construed as a legal opinion and use of this website will not create any lawyer-client relationship;

d) while reasonable care has been taken in ensuring the accuracy of the contents of the website, Argus Partners shall not be responsible for the results of any actions taken on the basis of information provided in this website or for any error or omission in the website; and

e) in cases where the user has any legal issues, the user must seek independent legal advice.

You are using an outdated browser. Please upgrade your browser to improve your experience.

Government agencies communicate via .gov.sg websites (e.g. go.gov.sg/open) . Trusted websites

Who Should Pay Stamp Duty

Terms of the agreement.

The party who is liable to pay stamp duty is usually stated in the agreements. For example, if you rent a property, the tenancy agreement should state who is liable to pay stamp duty.

Stamp Duties Act

When the terms of the document do not state who is liable to pay stamp duty, the party to pay stamp duty will follow that as specified in the Third Schedule of the Stamp Duties Act .

STAMP DUTY IMPLICATIONS ON E-AGREEMENTS

– Ishika Agrawal ( [email protected] )

I.        Introduction

The way businesses are done, has evolved with the evolution of technology. Now-a-days, business transactions and business contracts are mostly executed electronically in order to save time and expenses. However, this also raises concerns on enforceability of e-agreements in courts and the stamp duty implications on such agreements. In this article, we have tried to broadly discuss the acceptance of e- agreements as evidence in courts and the stamp duty implications on such agreements.

II.     Whether E-agreement is to be stamped?

In India, stamp duty is levied under Indian Stamp Act, 1899 [1] (“ Stamp Act ”) as well as various legislation enacted by different States in India for the levy of stamp duty [2] . Every instrument under which rights are created or transferred needs to be stamped under the specific stamp duty legislation. There is no specific provision in the Stamp Act that specifically deals with electronic records and/or the stamp duty payable on execution thereof.

Section 3 of Stamp Act is the charging section which provides for the levy of stamp duty on specified instruments upon their execution. Relevant provision of section 3 is reproduced below:

3. Instruments chargeable with duty- Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore respectively, that is to say—

(a) every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July, 1899;

(b) every bill of exchange payable otherwise than on demand or promissory note drawn or made out of India on or after that day and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and

(c) every instrument (other than a bill of exchange, or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of India on or after that day, relates to any property situate, or to any matter or thing done or to be done, in India and is received in India.

As per the above provision, broadly, two things are required for chargeability of stamp duty:

• There must be an instrument as mentioned in the schedule I of Stamp Act.
• The instrument must be executed .

What is Instrument?

The word ‘instrument’ is defined in section 2(14) of Stamp Act. There has been certain ambiguousness in the interpretation of definition of Instrument. Recent amendments have been made in the Stamp Act by Finance Act, 2019 which will come in force from 1 st April, 2020.

Prior to the amendment, section 2(14) read as:

2(14) “ Instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded”.

However, after the amendment, the scope of the definition given in section 2(14) has been widened by the inclusion of clause (b) and clause (c) which states that:

(14) “ instrument ” includes—

(a) every document , by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded;

(b) a document, electronic or otherwise , created for a transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded; and

(c) any other document mentioned in Schedule I,

but does not include such instruments as may be specified by the Government, by notification in the Official Gazette;

The aforesaid amendment is only with respect to the electronic document created for a transaction in a stock exchange or depository, but (a) of the aforesaid section is unaltered. Therefore, it may appear that the term “document” in clause (a) does not include electronic documents – however, such interpretation will not be in spirit of law. The Information Technology Act has already accorded legal recognition to electronic records. Therefore, the word “document” shall be read so as to include electronic documents as well.

Apart from the Indian Stamp Act, many states have their own legislation w.r.t. stamp duty. Majority of state specific stamp duty laws also do not specifically include electronic records within their ambit, however, some state stamp duty laws do refer to electronic records. For instance, Section 2(l) of the Maharashtra Stamp Act, 1958 [3] defining instrument, specifically refers to electronic records. It states that:

“ instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt;

Explanation. – The term “document” also includes any electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000.”

This makes clear that, Maharashtra Stamp Act imposes stamp duty on electronic agreements as well. This justifies that even electronic agreements come under the scope of Stamp Act, thus need to be stamped.

What is execution?

Section 2(12) of Stamp Act defines the terms “executed” and “execution”, which is also widened by the recent amendment [4] to take into account, attribution of electronic records. It states that:

“2(12). “ Executed and execution ”- executed and execution used with reference to instruments, mean signed and signature ” and includes attribution of electronic record within the meaning of section 11 of the Information Technology Act, 2000.”

Thus the execution means putting signature on the instrument by the party to the agreement. Attribution [5] of electronic record will also be treated as execution. It can be concluded from the above definition that, the specific instrument would attract payment of stamp duty upon their execution i.e. when it is signed or bears a signature, even if the execution takes place electronically.

III.   Time and Manner of Stamping

As discussed, an e-agreement is required to be stamped according to State specific stamp laws. Section 3 of the Indian Stamp Act and the stamp legislation of several other States in India specify that an instrument to be chargeable with stamp duty must be “executed”.

Section 17 of Stamp Act stipulates when an instrument has to be stamped. It states that:

17. Instruments executed in India- All instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution .

Thus, the stamp duty is to be paid before or at the time of executing the e- agreement and cannot be paid after execution.

However, one may also refer to section 17 of the Maharashtra Stamp Act which allow payment of stamp duty on the next working day following the day of execution.

There are some of the e-agreements such as click wrap agreements where execution does not takes place by the customer. Click-wrap agreements are the agreements where the customer accepts the terms and conditions of the contract by clicking on “OK” or “I agree” or such other similar terms. In case of such e-agreements, while the agreement can be said to be executed by the originator (by way of attribution), there is no signature of the customer which means such agreement does not get executed. Since, execution does not takes place, such agreements need not be stamped. However, another view can be derived that in such click wrap agreements there is acknowledgement of receipt of the electronic record by the customer. Such “acknowledgment” of receipt of electronic record u/s 12 of IT Act may be treated as deemed “execution” [6] by the customer. However, there are no clear provisions in the Stamp Act dealing with eligibility of stamp duty to click-wrap agreements.

As regards the manner of stamping, same can be done in three ways:-

• E-stamping: Some states like Maharashtra provides specific provisions for e-stamping. In such case, both the party can digitally sign the document and get it stamped electronically on the same day. For instance, Maharashtra E-Registration and E-Filing Rules, 2013 [7] facilitates online payment of stamp duty and registration fees. Rule 10 of the said rules states that:

Rule 10. For online registration, Stamp duty and registration fees shall be paid online to Government of Maharashtra through Government Receipt Accounting System (GRAS) (Virtual Treasury) by electronic transfer of funds or any other mode of payment prescribed by the Government.

Further, as per Rule 3 of The Maharashtra ePayment of Stamp Duty and Refund Rules 2014 [8] , the stamp duty required to be paid under the act, may be paid online into the Virtual Treasury through Government Revenue and Accounting System (GRAS).

• Franking: There is also the concept of franking in some of the states, in which case, document may be printed and stamped by the way of franking before the parties have affixed their signature. For instance, in case of Maharashtra Stamp Act, 1958, section 2(k) which defines “Impressed stamp” also includes impression by franking machine.
• Physical Stamping: Where the facility of e-stamping or franking is not available, a print of the e-agreement may be taken and the same may then be adequately stamped with adhesive stamps or impressed stamps before or on the date of execution by the parties as per section 10 of Indian Stamp Act.

However, the liability to pay stamp duty will be upon either of the party to contract as per the agreement entered between them. In the absence of any such agreement, liability to pay stamp duty shall be upon such person as may be determined under section 29 of the Indian Stamp Act.

IV.   Consequences of Non- stamping

Non-payment of stamp duty in respect of documents would attract similar consequences for both physical instruments as well as electronic instruments, unless specific consequences have been prescribed for electronically executed instruments under the respective stamp duty laws.

Inadmissibility as an evidence:

In terms of the Indian Stamp Act and most State stamp duty laws, instruments which are chargeable with stamp duty are inadmissible as evidence in case appropriate stamp duty has not been paid. Section 35 of Indian Stamp Act deals with the consequences of non-stamping of documents. It states that:

• Instruments not duly stamped inadmissible in evidence, etc.- No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped.

However, the inappropriately stamped instruments may be admissible as evidence upon payment of applicable duty, along with prescribed penalty.

Other Liability:

Every person who executes or signs, otherwise than as a witness, any instruments which is not duly stamped but the same was chargeable with stamp duty, can be held liable for monetary fines. In case of an intentional evasion of stamp duty, criminal liability can also be imposed.

V.      Conclusion

When all the applicable laws are taken and interpreted in conjunction with one another, it can be understood that, e-agreements being a valid agreements are also liable for stamp duty on execution. However, the same levy will be as per the respective State laws. Where the State legislation provides for the facility of e-stamping, the same shall be availed in order to move towards the goal of paperless economy. Whereas, some States are yet to recognize the importance and validity of e-agreements and e-stamping. It is looked forward on the part of state as well as central government to make specific provisions for e-agreements and e-stamping in order to save time and money and to provide an ease for doing business.

Our write-up on the legal validity of e-agreements can be viewed here.

[1] https://indiacode.nic.in/bitstream/123456789/2331/1/a1899____2.pdf

[2] The Central Government and the State Government (s) have been empowered under the Union List and the State list (respectively) to levy stamp duty on instruments specified therein.

[3] http://igrmaharashtra.gov.in/SB_PUBLICATION/DATA/acts/THE_MAHARASHTRA_STAMP_ACT-2016-revised_sections.pdf

[4] The amendment was brought by the Finance Act, 2019, which by Notification of Ministry of Finance dated 8 th January, 2020 are to be effective from the 1st day of April, 2020”

[5] Section 11 of the IT Act provides for attribution of electronic record as follows –

“11. Attribution of electronic records.–An electronic record shall be attributed to the originator–

(a) if it was sent by the originator himself;

(b) by a person who had the authority to act on behalf of the originator in respect of that electronic record; or

(c) by an information system programmed by or on behalf of the originator to operate automatically.”

[6] For instance, Article 7 of the UNCITRAL Model Law on E-Commerce states that where the law requires a signature of a person, that requirement is met in relation to a data message if a method is used to identify that person and to indicate that person’s approval of the information contained in the data message; and that method is as reliable as was appropriate for the purpose for which the data message was generated or communicated, in the light of all the circumstances, including any relevant agreement. This way of putting “signature” is not explicitly recognized in relevant Acts, however, the Courts may take a liberal view in this regard.

Read more –  http://vinodkothari.com/wp-content/uploads/2020/11/All-about-Electronic-contracts.pdf

[7] http://igrmaharashtra.gov.in/SB_PUBLICATION/DATA/rules/Registration/Maharashtra%20%20e-Registration%20&e-Filing%20Rules,%202013%20.pdf

[8] http://igrmaharashtra.gov.in/SB_PUBLICATION/DATA/rules/STAMPS/4_e-Payment_Rules.pdf

You might also like

Whether stamp duty is applicable on commercial agreements such as purchase sale of goods or services

I have a small query on the subject. What happens when the party to the e-agreements are based out of two separate States. For example, a party in Assam enters into an agreement with a Party in Tamil Nadu. Party A prepares the Contract and sends to Party B through an electronic medium. The customer digitally signs the contract and sends it back to A. The A thereafter digitally signs the contract and stores the same locally. The contract digitally signed by both the party is not shared with B by A. How will the stamping charges be determined on the contract i.e. Stamp charges of which State shall apply

Dear Ms. Ishika Agarwal, The document on E-agreement and E-stamping is well defined at your site and thank you lot for the same. This information will clarify doubt among people who are dealing with such documents.

If you can help me with clarification on E-signing of POA on general/specific purpose have any impact.? More over witness and Notary is required for such signing?

Very insightful Article!

However, I wanted your opinion on the below mentioned scenario:

We get our agreements franked from bank and then, the signatories sign the said document physically. Now that we have obtained class-2 e-signatures of our signatories, how shall we execute the franked documents through digital signature? We are located in Ahmedabad, Gujarat.

Thanks in advance for your guidance.

Very Good Article Ma’am!

Just one question, if we have electronically executed the documents, can we re-execute it at a later date on which stamp duty is paid, as it was previously electronically executed as per IT ACT 2000; however, as per Stamp Act, date of stamp duty cannot be before execution.

So, will it be legally accepted in court of law, if we re-execute document by paying stamp duty at a later date?

Also help me with the amount of penalty if we re-execute documents with in 1 month, as previously duty was not paid, so will we have to pay 100% fees, 200% fees, or what amount?

Thanks for your help!

The incidence of stamp duty arises when the instrument is first executed, hence, re- execution of the document will not serve the purpose.

At the time of impounding, the Collector shall require the payment of the proper duty, together with a penalty of five rupees; or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty.

Leave a Reply

Leave a reply cancel reply.

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Subscribe to receive regular updates!

Whether all Agreements should be on Stamp Paper and Registered

As legal professionals, we are often asked if agreements which are not made on stamp paper are invalid and unenforceable. The answer is a simple ‘NO’. Agreements may be made either in a stamp paper or a non-stamp paper. While making an agreement on a non-stamp paper, there are certain legal aspects that need to be complied with. This article reasons how unstamped agreements are valid and delves into the legal and technical repercussions of unstamped agreements.

The Contract Law on Unstamped Agreements

Like the contract law in most countries, the Indian Contract Act, 1872, maintains that all agreements that fulfil the essential conditions of free consent, lawful consideration and lawful object are valid and enforceable. It is important to note that even oral agreements, which constitute a major gamut of contracts in India are valid contracts under the Act provided that they fulfil the essentials of a contract. The Contract Act does not make stamping of agreements compulsory, nor does it deem an unstamped agreement/contract invalid and unenforceable. So, agreements do not require mandatory stamping for them to constitute as legal and valid. Even if they are not stamped they will still be enforceable as against the parties who have signed the same.

The Law on Stamping and Registration

The Indian Stamp Act, 1899 deals with stamping of agreements/documents in India. Stamping of agreements and documents is desirable as it ensures legality and validity, enforceability and admissibility in court since such agreements can be registered under the Indian Registration Act, 1908, which in turn ensures its enforceability.

The Indian Registration Act provides for registration of documents thereby recording the contents of the document. Registration is required to conserve evidence and title. There are certain agreements mentioned under section 17 of the Indian Registration Act, which are to be compulsorily registered and thus, cannot be made without stamp paper. Some of these are,

• Instruments pertaining to immovable property i.e. sale deed, agreement to sell, gift deed, lease, and others.
• Instruments pertaining to movable property valued at or above INR 100.
• Lease deed of an immovable property, where the lease exceeds a year.
• Instruments that transfer or assign a decree or order of Court for a value exceeding INR 100 and immovable property.
• Document to adopt a son executed other than through a will.

Documents that need to be made on stamp paper but need not be registered

There are certain agreements mentioned under the Indian Stamp Act which should be made on stamp paper but need not be compulsorily registered such as,

• Power of attorney that is given except power to sell property 
• Development agreement, Agreement of sale given by a landowner to a developer
• Lease agreement
• Lease deed for less than one year
• Memorandum of oral partition 
• Recording a past transaction

Agreements that are not made on Stamp Paper

The only discrepancy of an unstamped agreement is producing an unstamped agreement in court as evidence. Section 35 of the Stamp Act makes a document which does not bear a requisite stamp duty as inadmissible in a court of law. However, this provision has certain exceptions and does not completely negate the rights of the parties to enforce such an unstamped agreement. Under this section an unstamped agreement can be made admissible in court by paying the deficit stamp duty along with penalty i.e. deficit penalty amount, which may vary from state to state. Upon payment of deficit and penalty the agreement will be deemed to be fully stamped.

Obviously, these processes increase and delay processes in litigation and additional professional costs, hence, it is always advisable to make agreements on stamp paper by paying the required duty.

That being said, executing an agreement on a stamp paper everytime, especially when such agreements are needed to be executed often is understandably time consuming, tedious and consequently, impractical.

Recent Posts

Gratuity Payments: A Complete Guide

Tackling sexual harassment in co-working spaces.

Specialized Legal Shield

• Privacy Policy

The materials on this website are intended for informational purposes only. They are neither intended to be nor should they be interpreted as, legal advice or opinion.