What is Differential Stamp Duty & When Should You Pay it?

Stamp Duty Payment

The payment of stamp duty is a prerequisite for legalizing any document in India. Stamp duty is a tax levied at the state-level, in most cases, to register a legal document and is a staple of the Indian regulatory system. Stamp duty is also levied by the Central Statute in certain instances. 

However, since stamp duties are usually paid to state governments, what happens if a legal document that’s stamped in one state is brought to another state? Will you have to pay stamp duty twice in this case? 

This is where the notion of differential stamp duty comes in.


Differential Stamp Duty

The provisions surrounding the payment of stamp duty are enshrined in the Indian Stamp Duty Act of 1899. Additionally, individual states have their own state laws prescribing the rates of stamp duty to be charged in those states. 

Now, imagine you run a business with offices in Mumbai and Bangalore. You’ve got some legal documents that you want registered & acted upon in Mumbai. You get your documents signed in Mumbai & later in Bangalore. But since they were signed in Bangalore last, that’s where they’re said to be executed. This means that you’ve now got to pay stamp duty in Karnataka.

But recall that your documents are to be acted upon in Mumbai, so should you pay the stamp duty charges separately in Maharashtra to execute them again? 

The answer is – Yes, you need to pay a certain stamp duty amount to get your documents legalized across different states. 

But this new stamp duty amount is not the regular stamp duty amount you would typically have to pay. It’s called Differential Stamp Duty.

What is it?

Differential stamp duty is the difference in the amount of stamp duty levied between two states, typically the state in which the document is executed and the state in which it will be acted upon.  Differential stamp duty is also chargeable on electronic instruments such as digital contracts.

When should I pay it?

Differential stamp duty should be paid when a document is executed in one state and is brought to a different state to be acted upon. 

Differential stamp duty is to be paid only when the stamp duty amount for the document in the latter state, is more than the stamp duty amount in the state in which the document was stamped initially. 

In case the latter state’s stamp duty amount is less than that in the former state, no differential stamp duty will have to be paid.

How much differential stamp duty do I have to pay?

Differential stamp duty is calculated as the difference between the stamp duty amount levied in the two states. 

For example: Suppose you’ve paid Rs. 50 as stamp duty for a document in Karnataka, and the same document needs to be acted upon in Maharashtra, where the stamp duty payable is Rs. 70, say. In this case, you’ll have to pay a differential stamp duty of Rs. 20 to register your document in Maharashtra. 

How much time do I have to pay it? 

Differential stamp duty is to be paid within three months after the document has been moved to a new state as subject matter to be acted upon.  

Differential stamp duty across Indian states

As mentioned before, various states have their own provisions concerning stamp duty payment, and the same holds for the payment of differential stamp duty. Here are a few examples.

  1. Maharashtra – Sections 18 & 19 of the Maharashtra Stamp Act include the regulations to be followed for differential stamp duty payments in Maharashtra. The sections state that differential stamp duty must be paid within three months; the differential stamp duty charged will be the difference between the stamp duties payable, as mentioned above.

Maharashtra’s stamp act also contains provisions regarding copies of stamped documents, stating that differential stamp duty is to be paid on all copies of stamped documents.

  1. Rajasthan – Sections 18 & 20 of the Rajasthan Stamp Act deal with differential stamp duty payment and are similar to the provisions in Maharashtra. This means that stamped documents will be charged a differential stamp duty of the higher stamp duty amount paid subtracted from the stamp duty amount payable in Rajasthan and that the differential duty is to be paid within three months.

However, there are no provisions for copies of stamped documents.

  1. Karnataka – Section 19 of the Karnataka Stamp Act details the regulations concerned with differential stamp duty payment. Its contents are similar to Maharashtra, and Rajasthan’s stamp acts, with no regulations about copies of stamped documents.

Similarly, other states have their own laws about differential stamp duty, and these must be consulted before paying differential stamp duty.

How can you pay stamp duty?

Stamp duty payment is an integral part of your business documentation and compliance. Every business will have to pay stamp duty at some point, but most methods to do so are inefficient and expensive. 

Paper-based stamp duty payment has been shown to decrease efficiency by 20% and ends up losing your business 120 hours per customer. So what are the alternatives? 

Digital stamping is an online and automated way to pay stamp duty quickly in real-time. SignDesk’s digital stamping solution – stamp.it has reduced TAT by 99% for our 120+ customers. 

Paying stamp duty with stamp.it is as simple as logging into our web application, selecting stamp paper details, uploading your document & paying online! 

Book a free demo now to see how our digital stamping solution can revolutionize the way you document.

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