What is the Role of Stamp Duty and Registration Fees in Home Loan?

The process of financing a home can be complex and overwhelming, especially when it comes to understanding the role of stamp duty and registration fees. In this article, we will demystify these charges and provide you with a comprehensive guide to help you navigate through the property purchase costs and the charges involved.

When you take a Home Loan it's essential to consider not only the loan amount but also the additional expenses associated with buying a property. Stamp duty and registration fees are two significant components of these expenses. Let's explore what they are and how they impact your home loan financing. 

The Role of Stamp Duty in  Home Loans

Stamp duty is an indirect tax that must be paid to legalise property ownership. It applies to various documents involved in property transactions, such as sale deeds, conveyance deeds, and power of attorney papers. The payment of stamp duty is essential for claiming these documents and establishing legal ownership of the property

Example: Let's say you're buying a property worth ₹80 lakh in Mumbai, where the stamp duty rate is 5%. The stamp duty amount would be ₹4 lakh (5% of ₹80 lakh). 

In most cases, banks do not include stamp duty in home loans. So, in the above case, if your bank does not include stamp duty in home loans, you  need to arrange the ₹4 lakh through your internal funding. On the other hand, if it permits stamp duty as part of home loans, you can add ₹4 lakh to the loan amount you are availing. 

The Role of Registration Fees in  Property Purchase 

Registration fees are charges levied by the state government for registering a property transaction. These fees ensure that the property is legally transferred to the buyer's name.

Let's continue with the previous example of buying a property worth ₹80 lakh in Mumbai. If the registration fee is 1% of the property value, you would need to pay ₹80,000 as registration fees. 

While registration fees are not included as part of the home loans component by most banks, if they are, you can add it to the home loan you are availing. 

The registration fees and stamp duty are essential components of your property purchase cost. While they may seem like additional expenses, it's important to remember that they are mandatory and unavoidable when buying a property.

How Do Stamp Duty and Registration Fees Impact Home Loans?

• Stamp duty and registration fees are typically not included in the home loan amount approved by the lender. They are out-of-pocket expenses for the buyer. However, you need to check with your bank to see if they are allow the addition of stamp duty and registration fees as part of home loans. 
• Buyers must pay these charges separately in addition to the home loan amount. Failing to pay stamp duty means the buyer is not considered the legal owner. 
• Stamp duty and registration fees can add significantly to the upfront costs of buying a home. Buyers should budget for these expenses in addition to the home loan EMI. 
• However, there are some tax benefits available. Stamp duty and registration charges are eligible for a tax deduction of up to ₹1.5 lakhs under Section 80C of the Income Tax Act.