Your 11-month lease has to be stamped
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.