India: Stamp Duty Intricacies In India

Stamp duty is a very important factor in structuring transactions, specially with many of the states in India imposing high stamp duties on documents to shore up their revenues. A document inadequately stamped is not admissible as evidence. It is thus very important that stamp duty implications be examined upfront whilst structuring a transaction rather than just before execution as the latter approach often leads to delay and many a times may also lead to payment of excess stamp duty when it was not required. The matter is compounded by the fact that stamp duty is different in each of the states of India and there are a few states where even the local lawyers are not well versed with the stamp duty attracted by different documents. Moreover, changes to stamp duties may be announced by state governments at the time of the state budget or even otherwise. In the case of many states, the updated stamp acts/schedules may not be available. At times even the state government websites may not reflect the stamp duty incidence accurately. In the past, the practise of executants in states with high stamp duty was to execute documents in other states where incidence of stamp duty is lower. However, the stamp authorities have been getting increasingly vigilant and of late have been conducting suo-moto enquiries in suspected cases of underpayment. They have examining publicly available balance sheets and even information available on the internet to apprehend evaders.

Many states provide for levying differential stamp duty should the document first be executed in another state with lower stamp duty but brought in to the former state. At times it is only the original document that will attract differential stamp duty if it is brought into a state but many states have provided that even photocopies and scanned copies of documents brought into the state will attract differential stamp duty. Thus, stamp duty implications must be examined when documents or their photocopies are being moved from one state to another and even when documents are being transmitted by email to another state in India. One has also to be careful whilst bringing in documents executed overseas into India whether by email or physical or photocopies. Many states provide that the shortfall in stamp duty must be paid within a specified period (most commonly 3 months) of the documents being brought into the state.

The stamp laws of most states provide that when there are multiple instruments for specified transactions, duty payable only on the instrument attracting highest stamp duty needs to be paid on the principal instrument and nominal stamp duty is payable on the rest of the documents. It is found that quite often parties do not take advantage of this provision. The schedules to the stamp acts stipulate the rate at which stamp duty is attracted on an instrument. Stamp laws provide that where an instrument is so framed to come within two or more descriptions in the schedule to the stamp act,where the duties chargeable are different one need pay only the highest of such duties. In states where the stamp duty incidence is very high, it may be worthwhile to club several documents into one umbrella document and reduce the incidence of stamp duty.

When a single instrument relates to distinct matters, stamp laws require that the instrument shall be chargeable with the aggregate amount of duties with which the separate instruments each comprising of one of such distinct matters would be chargeable. One may come across instances where distinct matters may have been combined in one instrument and stamp duty has inadvertently been paid only on one instrument when it should have been paid separately for each distinct matter. This may happen in securitisation or bond transactions where a single instrument may be executed for convenience purpose in respect of distinct matters.

When the value of the instrument is indeterminate upfront like employment agreements, royalty agreements, etc, the provision in most state laws to pay a nominal stamp duty upfront can be availed of with the remaining stamp duty being paid as and when the value is ascertained.

Many of the states have now provided that instruments attracting stamp duty would also include electronic records. A common mistake that one comes across is documents being executed in State X when the address of executants and situs of subject matter is state Y. If such instrument is required to be filed with the registrar of companies in state Y, example an instrument of charge then the document would have to be uploaded electronically onto the website of the Ministry of Company Affairs. Since the concerned registrar of companies office (i.e State Y in this case) would download the documents in State Y, the electronic records are deemed to have been brought into the state where registered office is located at the time when the registrar of companies downloads the document and this may attract the stamp duty in State Y at that point of time.

If an instrument is not duly stamped the stamp authorities may levy a penalty which is generally an ad valorem rate which varies from state to state and maximum penalty could range from twice the deficient stamp duty to ten times the deficient stamp duty. Deliberate evasion of stamp duty could also attract imprisonment.

Finally, there may be situations where one stamps a document in anticipation of execution but the deal falls through and the document is not executed at all. If the stamp duty is high then most states provide for claiming a refund. There is a specified period within which such claims have to be lodged and supporting documents may have to be provided and the specified procedure strictly followed. However, the process of getting refund is slow and bureaucratic and one must be prepared for a long wait.

© 20th May, 2013. All rights reserved with Vaish Associates Advocates, 106, Peninsula Center, Dr S.S Rao Road, Parel, Mumbai 400 032. Phone: 022 4213 4101.

Specific Questions relating to this article should be addressed to the author at sandhya@vaishlaw.com

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the author of this article.

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Authors
Sandhya Iyer, Partner, Vaish Associates Advocates
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