Ajay Aggarwal, a resident in Shastri Nagar recently got a tenant for his spare two-room flat. Among other things, he conveyed to the flat's new occupant that the house will have to be vacated in 11 months, since the rent agreement will expire after this period.
When the tenant, who works at a University of Delhi (DU) college, expressed surprise at the odd duration of the rent agreement's validity, Aggarwal shrugged off and said, "This is the norm."
What the tenant is oblivious about is that the agreement's short duration works to his advantage. Sample this, in case the agreement were just a month longer, he would have to pay more money as stamp duty for registration of the document.
Most residential rental agreements usually expire after 11-month duration. This happens only to circumvent the payment of higher stamp duty. In case a rent agreement's time duration is one year or longer, the agreement will have to get registered with the court and a higher stamp duty paid.
Case I : The stamp duty in Delhi, for instance, is 2% of the average annual rent, plus the security amount. In case the monthly rent is Rs 10,000. The annual rent would be Rs 1,20,000. Accordingly, the stamp duty will be 2% of Rs 1,20,000, which equals Rs 2,400, plus Rs 100 for the security deposit which makes the total amount of Rs 2,500.
So, to avoid payment of Rs 2,500 of stamp duty at the time of registration of agreement, the landlord-tenant duo resorts to signing a rent agreement for a time period which is a month shorter than a year. This way they sign the agreement on and get it registered on Rs 100 valued stamp paper.
Case II: There can be another situation wherein the agreement signed will last for three years, and the rent will increase at the rate of 10% per annum. In such a case, the "average" annual rent for three years will be the annual rent for the second year, since the stamp duty will be calculated on the average annual rent and not the annual rent of the first year.
In the second case, the rent for first year will be paid at the rate of Rs 10,000 per month. Rent for the second year will be paid at the rate of Rs 11,000 per month. And eventually, rent for the third and final year will be paid at the rate of Rs 12,100. Average of the three years of rent will be the rent for the middle year. So, the average annual rent will be Rs 12,100 X 12 equals Rs 1,45,200. The stamp duty will, therefore, be calculated at the rate of 2% on Rs 1,45,200, which is Rs 2,904, plus another Rs 100 for the security, which brings the total amount to Rs 3,004.