All About Stamp Paper for Lease Agreement: A Comprehensive Guide

What Is Stamp Paper?

A stamp paper is a section of paper or a stamp that has been produced by the central government. Typically, there are two types of stamp papers: non-judicature stamp paper and judicial stamp paper. The main difference between these two types of stamp papers is the stamp value.
Under the Stamp Act of 1899, the judicial stamp paper must have a stamp value of one rupee, and the non-judicial stamp paper must have a stamp value of less than one rupee. Both types of stamp papers are required for all business contracts and agreements to be legally binding and enforceable in India.
A court fee stamp paper may also be used in respect to a court fee. This is a very small tax in the form of a judicial stamp paper. The payment value will be similar to the stamp value of a court fee stamp document. This court fee stamp can be used to pay for various legal processes. In effect , it amounts to a fine or a fee for submitting a plea to the court. The primary function of stamp paper is two-fold. Firstly, stamp paper is an evidence of the truthfulness of the documents that it is stamped on. Secondly, according to the Indian Stamp Act, stamp paper is a method of income to the government on a chronic and permanent basis. Stamp paper rates are determined by the state government, so they can vary depending on the jurisdiction.

Need for Stamp Paper

The primary reason why stamp paper forms the basis of agreements in India is because under the Indian Contract Act, 1872, no contract is enforceable except on payment of stamp duty or if an instrument is not under the instrument and is not subject to duty under the Indian Stamp Act 1899. Agreeing to leave a contract unexecuted within the stipulated time frame will render such an agreement void. Stamp duty is a state subject and thus, such requirements vary from state to state. A lease deed should be executed in accordance with the Stamp Act in force in the concerned states in which the property exists. Lease deeds are liable for payment of stamp duty based on rental value, premium, as well as lease ratios; the minimum period for stamp duty to be levied is three years. The Maharashtra Stamp Act prescribes the stamp duty for lease deeds as 0.50% of the average annual rent. The minimum stamp duty levied on lease agreements is Rs 200 irrespective of the rental value. Differential stamp duty will be levied on a lease deed that is executed for the first time or a lease agreement that is not registered at the time of its execution and on which stamp duty had not been paid. The differential stamp duty is levied on the basis of the formula: Stamp duty minus 40% (which is payable in the case of lease agreements on which stamp duty was not paid) = Differential stamp duty. Lease deeds that are applicable for differential stamp duty can be stamped by paying the differential stamp duty. In Maharashtra, a lease can now be registered within a period of four months as extended from three months, on unstamped or insufficiently stamped documents; registration will be subject to payment of duty of 15% of the duty as calculated on the basis of market rate and 25% of such penalty for delayed registration, but the amount leviable as penalty shall not exceed 10% of the total amount of the duty payable.

Types of Stamp Paper for Lease

As previously mentioned, stamp duty laws vary from state to state, and thus the denomination and colour of stamp paper for leases also vary from state to state. Generally, stamp papers have varying denominations with different colours for different types of agreements.
As far as lease agreements are concerned, the states of Maharashtra, Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh are the only states that have a specific and separate stamp paper for lease agreements. The remaining states have a prescribed stamp paper for conveyance of property. Further, the only other exception to this rule is that in the State of Jammu and Kashmir, a lease deed may be executed on non-judicial stamp paper of any value other than Rs. 0.50.
The variations in the colours and denominations of stamp papers for lease agreements in various states are detailed below:
In Maharashtra, a lease agreement must be executed on a green colour non-judicial stamp paper of value Rs. 100/- for lease of immovable property if the monthly rent stipulated in the lease agreement is above Rs. 350/-. A lease of immovable property of monthly rent of less than Rs. 350/- can be executed on a green colour non-judicial stamp paper of value Rs. 20/-.
In Gujarat, a lease agreement must be executed on a green colour non-judicial stamp paper of value Rs. 20/-. However, in certain districts, 15 monthly rents are required to be paid as stamp duty for a lease agreement.
In Karnataka, a lease agreement for the lessor for a period of three years or any extended period must be executed on a yellow coloured stamp paper of value of Rs. 500/-.
In Tamil Nadu, a lease agreement for a term of more than 10 years must be executed on a white colour non-judicial stamp paper of value Rs. 0.50/- per Rs. 100/-.
In Andhra Pradesh, a lease agreement must be executed on a white coloured stamp paper of a value of Rs. 50/- if the annual rent is less than Rs. 25,000/. If the annual rent is in excess of Rs. 25,000/-, then the appropriate stamp duty is the market value of the property multiplied by the applicable rate of stamp duty.
In Uttar Pradesh, stamp duty on lease agreements is 3% of the annual rent. An additional 2% will be required for a lease for a period of 11 months or more.
In Kerala, if a lease agreement is for a period of less than one year, the same must be executed on a stamp paper of Rs. 5/-. If the lease agreement is for a period of more than one year but less than five years, the same will have to be executed on a stamp paper of value of Rs. 20/-.
In Bihar, a lease agreement is required to be executed on a stamp paper of the value of one-fourth of one percent of the value of the rent of the property for the period of the lease. Thus, if rent of the property for a term of contract is Rs. 4,000/- per annum, the value of the stamp paper would be Rs. 10/-; (Rs. 4,000/- x 12.5%).
In Assam, a lease agreement has to be executed on a stamp paper of Rs. 85/-.
In Chhattigarh, a lease agreement of immovable property must be executed on a stamp paper of Rs. 50/-.
In Jammu & Kashmir, a lease agreement of a term of less than 5 years must be executed on a stamp paper of Rs. 0.50/-.
In Madhya Pradesh, a lease agreement of immovable property must be executed on a stamp paper of Rs. 1,000/-.
In Punjab, a lease agreement of immovable property must be executed on a stamp paper of Rs. 50/-.
The variation in the cost of stamp duty and the requirement of different colours and types of stamp paper for a lease agreement can be massively confusing and often leads to such agreements being faultily executed. To avoid confusion and mistakes, take the help of a professional lawyer who can help you through the requirements of the relevant lease document.

Calculating the Proper Stamp Duty Amount

The amount of stamp duty applicable depends on the annual rent. For example, if the rent is above Rs. 500 but less than or equal to Rs. 1,000, then the stamp duty payable on a stamp paper will be Rs. 30 and if the rent figure lies between Rs. 1,000 and Rs. 10,000, then the stamp duty payable will be Rs. 60.
A table of stamp duty rates based on a sliding scale (applicable in Maharashtra) is provided below:
Below-mentioned factors also affect amount of stamp duty on lease agreement:
• Purpose of allotment of property:- whether for commercial, industrial, retail, exhibition, hospitality, industrial hostel, medical & health care, agriculture, horticulture or nurseries purposes;
• Type of tenant – government or private;
• Lease term – longer the term, greater the rent;
• Whether lease is of entire land or part;
• Area of structural construction;
• Change in incremental rates per sq. mtr. for yearly increment in rent, additional fixed rent per sq. mtr.;
• Tenure of the lease agreement;
• Relationship between landlord and tenant;
• Deduction in rent amount due to rental discount;
• Special deduction for long-term leases;
• Basic percentage acquisition cost;
• Additional premium acquisition cost;
Above-mentioned factors also help tenans to conclude suitable tax arrangement for new tenancy.

Where to Get Stamp Paper for Lease

In India, if one goes to see, the stamp paper for lease agreements is available through various means. As mentioned earlier, the precise details are set out in the Stamp Act or its State counterpart. Basically, licensed stamp vendors (both physical as well as online) are authorized to sell stamp papers. Some states also have their own websites where electronic stamp papers can be procured from.
Licensed Stamp Vendors: In the country, there are a number of registered stamp vendors who possess licences to sell stamp papers. Mainly, they are based in urban areas and can be found on the government websites.
Online Companies: Recently, there has been a sudden growth in the number of online companies selling e-stamp papers, which essentially provide online payment facilities and electronic payment options (like internet banking, debit card or credit card), and arrange to deliver the e-stamp papers to the address specified by the purchaser.
Government Websites: On some of the government websites , e-stamp papers are issued for various reasons. For example – www.igrmaharashtra.gov.in is the website of the Inspector General of Registration and Controller of Stamp duty, Maharashtra (IGR, Maharashtra), wherein electronic stamp papers can be obtained (they are known as FRANKIE). Further, www.sariolympic.com is the website of the Inspector General of Registration (www.igrgov.com), some of the stamp vendors registered with this office are authorized to sell SA-3 stamp papers for value less than INR 1000. Likewise, www.njcm.nic.in is the website of the National Judicial Data Grid which is an inventory of all the information of cases pending in the District Courts and has the facility of purchase of e-stamp papers.
One needs to confirm which type of stamp paper is required? As the vendor either physical or online may not be aware whether a non-judicial or judicial stamp paper is required for the transaction, and always issues a non-judicial stamp paper.

Legal Consequences in Case of Insufficient Stamp Duty

It is a well settled position that non-payment of proper Stamp Duty on a document does not render the same null and void but only admissible in evidence which means that such an instrument would be received in evidence and can be marked as an exhibit but it cannot be read in evidence. Section 61 of the Indian Stamp Act, 1899 (as amended) states that if an instrument not duly stamped is tendered in evidence, the court shall first admit the instrument, marking it as an exhibit, then impound it. The very act of impounding is an admission that that instrument is both relevant and valid. In the event of an instrument being not duly stamped, the court has two alternatives, either to direct the party to pay deficit Stamp Duty or impound the document and forthwith send it to the Collector of Stamps for the purpose of assessment and collection of duty. It is important to note that the assessment of deficit Stamp Duty must be singularly on the basis of the nature and amount of duty payable on the instruments without reference to any other outside factor such as the payment of penalty or interest etc.
In case a document is insufficiently stamped, considerable debate exists amongst the various Courts in India on the effect of improper stamp duty on a document. In the case of Gopal Ram Soni vs. State of Rajasthan and Anr . it was held that Where an unstamped document is marked as an exhibit, it is to be read in evidence and it is not necessary for the court to send the document to the Collector. The court has effectively pronounced on the legal position that an unstamped and inadmissible document, once marked as an exhibit becomes admissible. This view of the Supreme Court is consistent with the view taken by some High Courts. In the case, Vinod Kumar Gupta vs. State of Haryana , the High Court of Punjab and Haryana has observed that where the concerned authority has chosen to impound an instrument or document and mark the same as an exhibit, it will have to be read into evidence.
The question of reading an insufficiently stamped document in evidence came before the Supreme Court in the case of Macson Pharma Pvt. Ltd. v. Collector of Stamps, Uttar Pradesh. It was observed that the question whether a document, marked as an exhibit in evidence, can be read in evidence or is admissible in evidence is judicial one to be decided by a competent court and not a ministerial one by the Collector.
Since the issue of improper stamp duty is a question of law, courts should technically not take a unilateral decision in the matter but leave the determination of the amount payable to the Collector of Stamps or the Stamp Officer.
In addition, the Supreme Court has held that the Collector of Stamps or the Stamp Officer, who is not a judicial officer, on determination of the deficit duty would be bound to collect the deficit duty determined irrespective of the question of penalty and interest for delay, however, the power of imposing the penalty and the interest is limited to the Collector or the Chief Controlling Authority.

Common Pitfalls of Stamp Paper Usage

Below are some common mistakes made by parties when using stamp paper that should be avoided:
Using stale stamp Papers
Parties will often write an agreement and affix stamp papers that have expired i.e. more than six months from the date of affixation of the stamp. In such cases, there is a direct loss of the legal standing of the agreement and it becomes very difficult for the aggrieved party to enforce the agreement.
Age of Stamp Paper is just one consideration
Often, persons merely look at the age of the stamp paper. What is important to note here is that the stamp paper in this scenario cannot be stale but it needs to be valid. The stamp paper is valid if it has been purchased in the name of the party executing a document that requires the use of stamp paper. If the stamp paper is purchased in the name of a third party, then it is not a valid stamp paper and cannot be used for execution of an agreement by a third party.
Non-adherence to value of stamp paper with respect to value of agreement
As per the Indian Stamp Act, every state has a particular set of stamp duty laws under which stamp duty needs to be paid. Each state has a different slab of stamp duty as well as a different slab of rates of stamp duty. These rates are further divided into slabs for different values of agreements. For instance, if the stamp duty slab for leases for a value less than INR 1,00,000/- is X and the slab for leases of a value greater than INR 1,00,000/- is Y; the stamp duty slab for a lease of a value of INR 1,25,000/- might be Y and not X. Hence, it is important to check as to whether, the stamp duty slab for a proposed agreement matches the value of the proposed agreement or not.
If the stamp duty slab is not adhered to, there may be not only a failure of execution of the complete agreement or the agreement might be void and it would not be possible to adduce it as evidence in front of a court of law.
If the stamp duty slab is adhered to, however, it may be possible to adduce the evidence but the court may impose penalty for deficiency in stamp duty.
Improper administration of the stamp duty
Stamp duty needs to be paid in accordance with the Stamp Duty Act as well as the Stamp Board Rules of the concerned state. Sometimes, improper stamp duty is paid despite being a stampable agreement. For example a court fee stamp of INR 10 which is required for an agreement to sell is affixed.
In such a situation, the stamp duty on the entire agreement will have to be paid (on the amount of INR 1,00,000/-). Further, a penalty may also be levied for non-stamping the complete amount.
Omission to value the provision for determination of lease on payment of certain amount for a lease
Under the Lease Act, a payment equivalent to 5% of the current annual rent, is required to be made at the time of determination of lease. This is similar to the right of pre-emption reserved under the Sale of Goods Act, 1930.
No provision of this nature is inserted into an agreement and the period for determination of the lease is passed. In such a case, the tenant has a right to set the value. It is, therefore, important to insert the above provision for determination of leases and the rate for it in the lease deed itself.
Even if it is not specifically written in the lease deed, the parties are free to contract subject to provisions of the Sale of Goods Act,1930.

Stamp Paper FAQs

This section aims to address some of the common questions surrounding stamp paper and lease agreements.
Is the use of stamp papers voluntary or compulsory for agreements? The use of stamp papers is mandatory for both lease agreements and leave & license agreements.
Whether sufficient stamp duty has been paid on an agreement or not is a question of fact to be decided in accordance with the law applicable to the same (for example the Stamp Act in Maharashtra). However, most Courts would not strike down an agreement because of an inadequate payment of stamp duty. In this regard, the stamp duty paid is usually sufficient if it is equal to at least half the original rate of stamp duty prescribed.
What if the Government withdraws the available categories of stamp papers? As stated above, stamp paper purchased in other denominations can be used for preparing a lease agreement . However, for such use there are certain conditions which need to be fulfilled (as per the Maharashtra Stamp Act) – the words ‘not transferable’, ‘revenue stamp’, die-stamp or facsimile diamond seal are required to be affixed on the agreement.
Is there a maximum value of stamp duty that can be paid while paying the stamp duty online? No, a person can pay any amount using e-payments.
How frequently do we have to re-register the same agreement? As per the Bombay Stamp Act, every document presented before any public officer or court shall be stamped for enforcement or registration. In view of this, it is likely that the agreement will have to be restamped every time an enforcement proceeding is filed or when it is required to be registered before the sub-registrar.