There are several legal formalities that one needs to comply with, when letting out a property or taking a place on rent. The agreements for leave and licence are required to be stamped and registered. As stamp duty is a state subject, all states have different rates and laws dealing with stamp duty. Here, we shall discuss the law as applicable to stamp duty and registration of leave and licence transactions, in the state of Maharashtra.
Stamp duty provisions
The basic framework of stamp duty is laid down in the Indian Stamp Act, 1899, which authorises the states to modify the same, as per their needs. Accordingly, the government of Maharashtra passed the Bombay Stamp Act, 1958. The payment of stamp duty on leave and licence agreements, is covered under Article 36A of the Bombay Stamp Act, 1958. Leave and licence agreements are required to be stamped, with a flat stamp duty rate of 0.25 per cent of the total rent for the period. In case any non-refundable deposit is also paid to the landlord, stamp duty at the same rate shall be charged on such non-refundable deposits, as well.
In order to reduce the incidence of stamp duty, people used to pay a significant amount as interest-free deposit, along with nominal rent. This lacuna has been plugged and now, in cases where any refundable deposit is collected by the landlord, a notional annual interest of 10 per cent is imputed on such interest-free deposit and you have to pay stamp duty at the same rate, on such interest for each year of the term of the licence agreement.
The rate of stamp duty for leave and licence agreements is the same for residential premises, as well as for commercial premises. The leave and licence agreement can be executed, for a period not exceeding 60 months.
Formula to calculate the stamp duty payable on a rental agreement
Monthly rental x No of months = A
Advance rent for the period/non-refundable deposit = B
10% x Refundable deposit x No of years of the agreement = C
Total amount subject to stamp duty = D = A+B+C
Stamp duty = E = 0.25% x D
For example, if you enter into a leave and licence agreement for 24 months, with a monthly rent of Rs 25,000 and a refundable deposit of Rs five lakhs, you will have to pay a stamp duty of Rs 1,750 (being 0.25% on rent of Rs six lakhs for two years and interest of Rs one lakh for two years).
Registration provisions for rental agreements
As per Section 17 of the Indian Registration Act, which applies to the whole of India, every agreement for leases of immovable property from year to year, or for any term exceeding one year, are required to be registered mandatorily. So, unless the state laws provide otherwise, each and every leave and licence agreement for a period of 12 months or more, has to be registered.
However, for Maharashtra, the law has been made more stringent and as per the provisions of Section 55 of the Maharashtra Rent Control Act, 1999, every agreement of a tenancy or leave and license has to be in writing and the same also needs to be mandatorily registered, irrespective of the period of tenancy.
It is the responsibility of the landlord to ensure registration of the rental agreement, failing which, the landlord may have to pay a penalty of Rs 5,000, as well subject himself to imprisonment upto three months. In case the agreement for leave and licence is not registered and any dispute arises between the landlord and the tenant, the terms and conditions of the agreement as contended by the tenant shall be taken as the true and correct conditions on which the immovable property has been given on rent, unless it is proven otherwise.
The registration fee for a tenancy agreement in Maharashtra, depends on where the property being let out, is located. The registration fees are Rs 1,000, if the property is situated under any municipal corporation area and it is Rs 500, if the same is in a rural area. In the absence of any agreement to the contrary, the cost of stamp duty and registration is to be borne by the tenant.
For registration of the agreement, you will need some basic documents of the tenant, landlord and the witnesses, such as a passport-size photograph, a photocopy of identity proof (e.g., PAN card) and electricity bill or property document like Index II or tax receipt of the property being let out.
(The author is a tax and investment expert, with 35 years’ experience)