The Indian Stamp Act, 1899

What it does

The Act charges duty on an instrument. That single feature explains most of what surprises people about stamp duty. The charge does not follow the economic transaction, it follows the paper that records it. One transaction carried out through two documents can bear duty twice. One document that covers several distinct matters bears the duty of each. A document that records nothing new, because the transaction was complete already, may still be chargeable on its own terms.

Duty attaches on execution. An instrument executed in India is to be stamped before or at the time of execution, not afterwards, and an instrument executed outside India may be stamped within three months of its first receipt in India. Stamping after execution is not the ordinary course but an irregularity with its own consequence, dealt with below.

Who bears the duty is a matter for the parties, and the Act supplies the answer only where they have not. In the absence of agreement it allocates the burden by the kind of instrument, which is why a well drawn agreement says who pays rather than relying on the default.

Who sets the rate

Legislative competence is split, and this is the part most often got wrong in a cross-border or multi-state transaction. The Union legislates on the rate for a defined set of instruments, principally bills of exchange, promissory notes, cheques, bills of lading, letters of credit, insurance policies, transfer of shares, debentures and proxies. For other instruments, conveyances and leases and mortgages among them, the rate is for the State.

The consequence is that there is no single Indian rate for a sale deed or a lease. The applicable law is the State's, and the State is identified by where the instrument is executed, with the position adjusted where the property or the later use of the document lies in another State. An instrument stamped for one State and then used in another may attract the difference.

Securities market instruments were brought into a single collection regime by amendments that took effect on 1 July 2020. Duty on the issue and transfer of securities through a stock exchange, a clearing corporation or a depository is collected by those institutions at a uniform rate and distributed to the States, which removed the earlier position of the same trade bearing duty differently by the State of the parties.

The bar, and how it is cured

An instrument not duly stamped is not admitted in evidence for any purpose by a person having authority to receive evidence, and is not acted upon or registered by a public officer. That is the provision that converts a stamping oversight into a problem about proof, and it arrives at the worst moment, when the document is tendered.

It is curable, and the cure is statutory rather than discretionary. The instrument is impounded, and on payment of the deficit duty with the penalty the Act prescribes, it becomes admissible. What the payment does not do is work backwards: the document is received once the duty is paid, and the time taken to pay is time the matter does not move. A further route lies in an application for adjudication of the proper duty before execution, which is the answer where the chargeability itself is genuinely uncertain.

Separately, where the duty depends on value, the States have provisions by which an undervalued instrument is referred for determination of the market value, and duty is assessed on that value rather than on the consideration recited. A recital that understates the price does not reduce the duty, and it creates a record that is used elsewhere.

What turns on it in practice

Four questions, and the first two should be answered before signature rather than after. What is this instrument under the Schedule, which turns on what the document does and not on its title. Which State's law applies to it, and what the rate there is. Who pays, and does the agreement say so. And, where the document is already executed, whether it was duly stamped, because the answer decides whether it can be registered under the Registration Act, 1908 and whether it can be put to a court at all.

The recurring error is treating stamp duty as a cost of closing rather than a condition of using the document. The duty is a small figure against most transactions. The instrument that cannot be received in evidence is not.