Stamp Duty and Stamping of Documents

What is stamp duty?

Stamp duty is a tax levied by governments for legal recognition of documents. Stamp duty is a source of revenue for the government. Section 3 of the Indian Stamp Act, 1899 stipulates payment of Stamp Duty. Various State enactments dealing with Stamp Duties also exists, other than Indian Stamp Act, 1899.

The Stamp Duty on instruments like bills of exchange, promissory note, bill of lading, receipts etc is governed by the Indian Stamp Act, 1899. State enactments stipulate the stamp duty on other documents such as agreements, Power of Attorney, affidavit, indemnity etc . Stamp duty relating to transactions of properties is also stipulated by state governments. Such stamp duties may vary from State to
State. Further, stamps printed and published in one State may not be valid in another State.

Why is stamping of documents necessary?

In order for a document to be valid or enforceable in a court of law, it has to be  properly stamped by paying sufficient stamp duty.  As per Section 2(11) of the Indian Stamp Act, 1899, a document is deemed to be duly stamped, if it bears an Adhesive or Impressed Stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with Law for the time being in force in India.

Document not properly stamped, is not admitted as evidence by the Court.  It is also essential that stamping on documents is done before or at the time of execution of the documents.  Documentation carried out on non-judicial stamp papers/ affixation of special adhesive stamps purchased afterwards is invalid, unless specific exclusion is provided by law.   Please read  Documents, Instruments and Stamping

What are the different types of stamps?

The stamps that are generally used for execution of loan documents come under the following categories:

a.    Revenue Stamps
b.    Special Adhesive Stamps
c.    Impressed Stamps
d.    Embossed Stamps
e.    Bill of Exchange Stamps
f.    E – Stamping

Revenue Stamps are affixed on Demand Promissory Notes, Receipts, Balance Confirmation Letters and Acknowledgements of Debt and security. Special Adhesive Stamps are used on prescribed documents. The stamps carry inscription such as Insurance, Notarial, Share Transfer, etc. Some State enactments stipulate Balance Confirmation Letters and Acknowledgements of Debt and security shall be stamped with Special Adhesive Stamps. In such states Special Adhesive Stamps are being used instead of revenue stamps.

Adhesive stamps can be used in lieu of stamp papers, but the stamp has to be cancelled by proper officers appointed under the stamp rules. In some states like Kerala, Managers and Agents of Scheduled Commercial Banks are included  within the meaning of ‘Proper Officer’. In such states  use of  adhesive stamps in lieu of Non Judicial Stamp papers is valid.

What is franking?

Franking is a method of stamping the documents. In this method, stamp along with value  is imprinted on the document against payment of stamp duty. In this method, unexecuted typed/printed document along with the requisite  amount has to be submitted to proper office.  The document is franked with the stamp and is returned to the applicant.

What is e-stamping?

E-stamping is secured way of paying Non-Judicial stamp duty to the Government through a computer based application.  The Stock Holding Corporation of
India (SHCIL) is the authorised agency for carrying out the process.  E-stamping is currently operational in the states of Assam, Tamil Nadu, Rajasthan, Himachal
Pradesh, Gujarat, Karnataka, NCR Delhi, Maharashtra, Uttarakhand and the union territories of Dadra & Nagar Haveli, Daman & Diu.

Once e-stamping is stabilised, it will replace the system of physical stamp paper/Franking.  E-stamping has the benefits like generation in few minutes, tamper proof character, no need of specific denomination, unique identification number and simple verification method through recommended site etc.

What are methods for cancellation of stamps?

As per Indian Stamp Act, every stamp on documents is required to be cancelled in such a way that it cannot be used again. Signing by the executant across the Adhesive Stamp is the easiest way of cancellation of Adhesive Stamps. If the stamp is not effectively/properly cancelled, it is treated as unstamped. If more than one stamp is used, all stamps should be cancelled. A non-judicial stamp paper can be cancelled by writing on the face of the stamp Itself.

What happens if a document is insufficiently stamped?

Documents which are not duly stamped are inadmissible in evidence. Law provides avenues for rectification by paying the duty and penalty.

If a document is not duly stamped, the same cannot be rectified by mere annexing the stamp paper of the deficit value. In cases of document which was not duly stamped by accident, shall be produced before the Collector of Stamps. After proving that the omission was by mistake or accident, the position can be rectified by paying the deficit. In such cases, the document must be presented to the
Collector of Stamps within a period of one year from the date of execution.

In case, the period of one year is expired or the omission was not due to any accident or mistake, the rectification could be done only by paying the deficitduty and penalty in court when they are produced before the Court in support of the claim.

In certain states, Stamp Act has provisions to inspect documents  and impound  insufficiently stamped documents  during the course of such inspection. In other states, insufficiently stamped documents could be impounded by the Stamp Authority upon production of such documents. For a document to be treated as properly stamped, the stamp of proper description and value should be used.

What is the process when a document is executed in two states?

When a document is executed in two states, it should be first executed in one state on the stamp applicable to the said state of execution. The document should then be sent to the second state. If the rate of stamp duty is more in the second state, stamp for the deficit should be affixed before or at the time of execution. If the stamp duty in the first state is higher, then the execution without affixing adding additional stamp would be valid.    Why banks insist for execution of documents for loans?    Types of stamps and stamping methods