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Deccan Herald » DH Realty » Detailed Story
Stamp Duty on mortgage loans
By S Selvakumar
In recent times, availing of housing loans has become a costly affair in view of the notification issued by the Karnataka Government vide Karnataka Act No.7 of 2006

In recent times, availing of housing loans has become a costly affair in view of the notification issued by the Karnataka Government vide Karnataka Act No.7 of 2006, imposing 0.5 per cent of stamp duty payable under Karnataka Stamp Act 1957, on the housing loans/mortgage loans sanctioned. This provision is applicable for loan amount availed and also for the renewal of the loan after 01/04/2006.

Deposit of Deeds

Mortgage by deposit of title deeds, also known as equitable mortgage is defined under Section 58(f) of Transfer of Property Act, 1882, wherein the mortgagor delivers the title documents pertaining to the immovable property to the creditor or mortgagee in the places notified by the Central Government, with intent to create security/mortgage thereon.

Article 6 clause (1) of the Karnataka Stamp Act, after amendment, refers to an instrument of deposit of title deeds as any note, letter, memorandum or writing relating to the deposit of title deeds, whether written or made either before or at the time when or after the deposit of title deeds is effected and whether it is in respect of the security for the first loan or any additional loan or loans taken subsequently.

Such a letter, note, memorandum or writing shall, in the absence of any separate agreement or memorandum of agreement relating to deposit of such title deeds, deemed to be an instrument evidencing an agreement relating to the deposit of title deeds.

The essential features of mortgage are:

“The money, the payment of which is secured, may be an existing debt or a future one. It may also be a performance of engagement, which gives rise to monetary liability.”

The essential feature of this type of mortgage is that the mortgagor delivers the documents of title to the mortgagee/creditor, which may be physical or constructive.

Reduction in duty

In 2006-07 budget, the Karnataka Government had reduced stamp duty by 0.5 per cent, which was a welcome move.

Accordingly, stamp duty payable for the properties situated within the limits of Bangalore Mahanagara Palike (BMP) and City Municipal Councils (CMC) was reduced to 8.4 per cent, while stamp duty for the properties which does not come within the limits of BMP and CMC was fixed at 8.5 per cent. However, introducing payment of stamp duty on the mortgage deed created for housing loan has indirectly added the burden on the public and has negated the effect of recent reduction of charges on property registration.


Under the Karnataka Stamp Act, stamp duty of 0.5 per cent and registration charges of 0.5 per cent or maximum of Rs.10,000 on memorandum of deposit of title deeds and simple mortgage was required to be paid, while exempting mortgage by deposit of title deeds from payment of stamp duty. However, with the introduction of the new amendment by the Government of Karnataka, even mortgage by deposit of title deeds is also brought within the ambit of payment of stamp duty.

Registration of mortgage deed is optional. It is the banker who has to decide whether registration of mortgage deed is necessary or not. In case of registration, the borrower has to pay either 0.5 per cent on the loan advanced or maximum of Rs 10,000 towards stamp duty. Registration of mortgage deed will safeguard the interest of the bank in future though such registration is optional.

Example No.1: If the bank advances loan for an amount of Rs 5,00,000, Rs 2,500 is required to be paid towards stamp duty and Rs 2,500 towards registration.

Example No.2: If the bank is advancing housing loan of an amount of Rs one crore, the stamp duty required to be paid for creating mortgage will be Rs 50,000. On the other hand, registration charges payable will be Rs 10,000 only.


In case of business loan, in addition to the stamp duty paid on the equitable mortgage, they are liable to pay stamp duty for the hypothecation of machineries, book debts and stock-in-trade.

The stamp duty on such an instrument of hypothecation is 0.25 per cent or maximum of 10,000. Further, if separate hypothecation agreements are entered then, stamp duty will be charged on each of the agreements individually. On the other hand, if composite agreement is made then, stamp duty liable to be paid is Rs.10,000.

The effects

The amendment brought in the Karnataka Stamp Act by introducing 0.5 per cent stamp duty payable on the mortgage created for loans will affect business developmental activities. The investors intending to borrow loans from the banks, for the development of their business will have to pay additional 0.5 per cent towards stamp duty, which is not payable in few of the States.

The concept of imposing stamp duty on the mortgage deed is already prevailing in few states such as Andhra Pradesh and Tamil Nadu where the scheme has been implemented systematically.

In Tamil Nadu, payment of stamp duty has been divided into two slabs, the first slab of Rs. 5,000 is applicable where loan advanced is less than Rs. 20,00,000 and the second slab of Rs. 10,000 is applicable where loan advanced is more than Rs. 20,00,000, which will help the borrower to opt for applicable slab.

Even the Government of Karnataka, may consider introduction of slab system in order to provide relief to the housing finance and other borrowers.

The author is an advocate who specialises in property matters. He can be reached on e-mail :

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