- The Indian Stamp Act, 1899 is the central statute; each state sets its own rates and procedures for most instruments, and the Act applies directly to documents in the Union Territories and to specified instruments.
- An instrument chargeable with duty is inadmissible in evidence until duty and penalty are paid (section 35) — a defect that can be cured, not one that makes the contract void.
- In In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (2023), a seven-judge Bench held that non-stamping or insufficient stamping does not render an arbitration agreement void or unenforceable; it is a curable defect for the tribunal to deal with.
- Stamp the document in the correct state, in the right category and on time — penalties run at multiples of the deficiency.
Where the law comes from
Duty is levied on instruments — written documents by which rights or liabilities are created, transferred, limited, extended or recorded. Schedule I to the Indian Stamp Act, 1899 lists the instruments and the central rates for certain documents such as bills of exchange and cheques. For most others — conveyances, leases, agreements, powers of attorney, gifts — each state’s own schedule applies by amendment. Documents executed outside the state but sent or received within it are chargeable on receipt (section 18), generally within three months.
| Instrument | Basis of duty | Note |
|---|---|---|
| Conveyance / sale deed | Ad valorem on the higher of consideration and market value (state method) | Duty plus registration fee; both vary by state |
| Lease | On rent, premium and term | Leases over one year need registration |
| Agreement to sell | Fixed or ad valorem depending on state and whether possession is given | Check the state schedule |
| Power of attorney | Fixed, or ad valorem where it authorises a sale | Varies between states |
| Commercial agreement or MoU | Usually a fixed amount, or ad valorem where it creates a financial obligation | Some states treat certain MoUs as agreements |
| Share transfer | Ad valorem, levied under the Indian Stamp Act on the instrument of transfer of shares | Dematerialised shares are charged on the transaction under the Act and Rules |
| Loan / security documents | Ad valorem on the amount secured, with caps in some states | Mortgage deeds and debentures have separate heads |
What happens if the document is unstamped
The consequences of non-payment
- At executionThe instrument is complete when executed; the contract is not void for want of stamp.
- At production in court or before an authorityAdmission in evidence is barred under section 35 until the deficient duty and penalty are paid.
- ImpoundingThe court or authority impounds the document and sends it to the Collector (sections 33 and 38).
- PenaltyTypically up to ten times the deficient duty, or a fixed multiple, depending on the state and the stage — paid together with the duty.
- After paymentThe document becomes admissible and the case proceeds.
The arbitration clause question
Before 2023, earlier decisions had gone back and forth on whether an arbitration clause in an unstamped contract was enforceable at all, with some holding that a court could not appoint an arbitrator under section 11 until the main contract was duly stamped. A seven-judge Bench of the Supreme Court in 2023 settled the point: an unstamped or insufficiently stamped agreement is not void; it is inadmissible until the defect is cured, and the defect is for the arbitral tribunal to deal with — the court at the section 11 stage examines only the existence of an arbitration agreement. In practice, an arbitration can start and the stamping can be completed during the proceedings, but the tribunal will not rely on the instrument until it is cured.
Safe practice
- Stamp commercial agreements in the state where they are executed or will be performed, as the law requires
- Check the state schedule for each category; do not assume a nominal amount
- Keep the e-stamp or franking certificate with the executed document
- Pay deficiency voluntarily and early, which reduces penalty in many states
Common errors
- Signing in one state on stamp paper of another that is not valid for the document
- Treating an “MoU” as exempt when state law treats it as an agreement
- Paying duty on a lower consideration than the stated price
- Relying on the parties’ “understanding” that stamping will be done later
Stamping checklist for a commercial agreement
- Identify the state of execution and state of performance
- Check the state schedule for the category and basis of duty
- Use e-stamping or franking, and match the party names on the certificate
- Execute within the validity of the stamp paper
- Keep the original, with the stamp certificate, with the company records
- Register the instrument where registration is mandatory for its class
For stamp duty on property transfers see registration and stamp duty; for drafting see contract drafting clauses.
Frequently asked
Is an unstamped contract void?
No. It is a valid contract that cannot be used in evidence until duty and penalty are paid. The Supreme Court’s 2023 decision on arbitration agreements adopts the same approach.
Can I stamp it later?
Yes, in most cases, on payment of duty and penalty, but the penalty rises with delay in many states and the cost is avoidable.
Does an electronic agreement need stamping?
An electronic record that is an instrument chargeable under the Act is generally liable to duty; states have e-stamping systems and some treat electronic execution as equivalent to paper. Confirm the state position.
Which state’s duty applies?
Generally the state where the instrument is executed, and where it is later received, the state where it comes to be used; for property documents, the state in which the property is situated.
Stamp duty is set by each state, the Indian Stamp Act has been amended by the states, and case law on admissibility and arbitration continues to develop. Confirm the current state schedule before executing. Not a substitute for advice from an advocate or chartered accountant on your facts.