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Introduction

Purchasing a house or plot is one of the biggest milestones in a person’s life. With rising property costs, purchasing a home has become one of the biggest expenses an individual incurs in his/her life. This expense is further increased by miscellaneous expenses like stamp duty and registration charges. These expenses are mandatory and all new property owners have to pay for these, in order to complete the transfer process.

Stamp duty charges constitute up to 10% of the property value whereas registration charges account to usually 1% of property value. This excess expenditure creates an added burden on the home buyers.

In order to ease this burden, the government has included these expenses as part of deductions under the Income Tax Act, 1961. These expenses form part of the deductions allowed under section 80C of the Act. According to this section, the maximum deduction or tax benefit that can be allowed to a home buyer for the added expenditure of stamp duties and registration expense is restricted to Rs. 1,50,000 subject to fulfilling the underlying conditions stated in this section.

Stamp Duty – Meaning and Method of Calculation

Stamp duty is referred to the tax that is levied on any kind of monetary transaction or consideration for the purchase of a property. This charge was effected on the property and part of the property cost after the passing of the Indian Stamp Act in 1899.

Stamp Duty is a tax that is levied on many types of transactions such as conveyance deeds, sale deeds, and power of attorney papers. A person can collect the documents pertaining to the property only after the payment of stamp duty.

Stamp duty is charged as a percentage of cost of the property and hence varies based on the evaluation of the value and nature of the property. The amount derived is further compared with the prevailing circle rate. The final amount of stamp duty is calculated on the value that is higher.

There are three ways to make stamp duty payment:

  • E-stamping,
  • Franking
  • Non-judicial stamp paper

Registration Charges – Meaning and Method of Calculation

The registration fee is a charge on the property that the buyer has to pay over and above the stamp duty. Payment of this charge is required to get the property registered in the buyer’s name.

Registration charge is calculated as a percentage of the total cost of the property. It is calculated usually at the rate of 1% of the total cost of the property or its market value, depending on the location of the property. Registration charges are subject to state laws and are therefore there are varied limits for registration charges.

Eligibility for Tax Benefit on Stamp Duty and Registration Charges

Stamp duty and registration charges are a mandatory part of every property transaction. However, not everyone is allowed to claim the tax benefit that is available under the tax laws. Following are the persons allowed to claim the tax benefit under section 80C of the Income Tax Act, 1961.

  • Individuals
  • Hindu Undivided Families (HUFs)

When can one claim stamp duty and registration charges deductions u/s 80C?

  • Deduction on stamp duty and registration charges can only be claimed in the year the actual payment is made towards these expenses.
  • As mentioned above, only an individual and a HUF can claim this deduction in their income tax return.
  • Claim for this deduction is tenable or valid only if the construction of the property has been complete and the owner has the legal possession of the house.
  • The amount against these expenses must have been paid by the assessee. 
  • Another important requirement is that the house should be in the name of the assessee claiming deduction.
  • Payment towards such expenses for under construction property is not allowed. 
  • Deduction under the section is available only for a new residential property & not commercial property or resale property.
  • Deduction is not allowed in case expenses are paid by any other person. 
  • Residential plots or land also do not qualify for claiming deduction under section 80C.
  • Joint owner can individually claim deduction of the expenses in the proportion they share the house property up to Rs.1,50,000 each under section 80C.
  • However, such expenses cannot be claimed if assessee has already occupied the house property either wholly or partially.
  • Any other expenses paid for the purpose of transfer of property shall also be eligible for deduction such as service tax paid can also be claimed as deduction under section 80C.
  • If the house property is transferred within a period of 5 years of purchase, the entire amount of deduction allowed is deemed to be the income of the assessee in such previous year or financial year in which the transfer was effected. Assessee will hence be liable to pay tax in the assessment year of transfer of house property.

FAQs on Tax Benefit on Stamp Duty and Registration Charges

1. When is stamp duty and registration fee charged?

​Stamp duty and registration fee is charged at the time of sale or transfer of a property.

2. Is stamp duty and registration fee considered to be part of the total cost of the property?

Yes. Stamp duty and registration fees are considered to be part of the total cost of a property.

3. What is the percentage of registration fees charged on a property?

Registration fees are charged at the rate of 1% of the value of the property or the agreement value.

4. Where can the buyer claim the tax benefit for stamp duty and registration fees paid?

A Buyer can claim the tax benefit of the stamp duty and registration fees under section 80C of the Income Tax Act, 1961.

5. What is the maximum tax benefit or deduction allowed on stamp duty and registration fees under section 80C?

The maximum benefit allowed under section 80C for stamp duty and Registration fees is Rs. 1,50,000. In case of joint owners, each owner is allowed to claim the tax benefit on such charges to the extent of his/her share in the property subject to a maximum of Rs. 1,50,000.

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