Your 11-month lease has to be stamped

HT Estates - - HTESTATES -

Ever been asked to sign an 11-month rent agree­ment to save stamp duty? Un­der­stood its ram­i­fi­ca­tions? If not, you might want to read this ar­ti­cle.

Most people tend to con­fuse stamp­ing and reg­is­tra­tion and/or use these terms syn­ony­mously. Stamp­ing and reg­is­tra­tion have dif­fer­ent im­pli­ca­tions. The In­dian Stamp Act, 1899 deals with stamp­ing of documents. Reg­is­tra­tion of documents, on the other hand, is cov­ered by the In­dian Reg­is­tra­tion Act, 1908.

In terms of Sec­tion 17(1) (d) of the Reg­is­tra­tion Act, 1908, all leases, for a term of one year or above, re­quire com­pul­sory reg­is­tra­tion. Reg­is­tra­tion, there­fore, is not com­pul­sory for an 11-month lease. How­ever, such a lease does re­quire stamp­ing in ac­cor­dance with the In­dian Stamp Act (as amended by their re­spec­tive state amend­ments).

So can you ex­e­cute an 11 -month lease on a ` 100 stamp paper in Delhi where the rent re­served is, say ` 10,000 per month? The an­swer is, no. The lease will need to be ex­e­cuted on an ad­e­quately stamped paper, how­ever, reg­is­tra­tion of a lease, for an 11-month term, is not manda­tory.

If a lease is in­ad­e­quately stamped, a f i ne up t o 10 times may be im­posed on the amount payable and/or the doc­u­ment, in ques­tion, may be im­pounded. The con­se­quences of non-reg­is­tra­tion (of a com­pul­so­rily reg­is­ter­able doc­u­ment) are more se­ri­ous. An un­reg­is­tered lease (one more than 11 months) will be in­ad­mis­si­ble as ev­i­dence, in case of lit­i­ga­tion be­tween a land­lord and ten­ant.

In or­der to avoid pay­ment of stamp duty, of­ten par­ties, en­ter into a lease and li­cence ag ree­ment. Li­cences, as op­posed to leases, can be ex­e­cuted on a ` 50 stamp paper (sub­ject to each state’s mod­i­fi­ca­tion). A li­cence con­tain­ing an in­dem­nity will re­quire an additional stamp.

If you de­cide to ex­e­cute a li­cence in­stead of a lease, be sure of its im­pli­ca­tions. Leases and li­cences are very dif­fer­ent documents. Merely terming an agree­ment as lease or li­cence will not de­ter­mine its char­ac­ter. Both have dif­fer­ent ram­i­fi­ca­tions. First, leases and li­cences are gov­erned by two sep­a­rate laws. A lease is de­fined un­der Sec­tion 105 of the Trans­fer of Property Act, 1882 (TPA), while a li­cence is de­fined by Sec­tion 52 of the In­dian Ease­ments Act, 1882.

As the ti­tle of the TPA sug­gests, in a lease, there is a trans­fer of in­ter­est in favour of the lessee. In a li­cence, a li­censee merely ac­quires the right to use a property. Pos­ses­sion trans­fers to a lessee in a lease, while in a li­cence, the ju­ridi­cal pos­ses­sion re­mains with the li­cen­sor/owner.

A lease can be ter­mi­nated only in ac­cor­dance with the terms of the lease or in the ab­sence thereof, by the pro­vi­sions of the TPA.

But a li­cence is de­ter­minable at the will of the owner/ li­cen­sor.

THINKSTOCK

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