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Home > Business > Business Headline > Report

Maharashtra to tax loans

Rajendra Palande & Vidyalaxmi in Mumbai | December 14, 2005 10:09 IST

The Maharashtra government has decided to levy 0.25 per cent stamp duty on all loan agreements, forcing India Inc and individuals to cough up 25 basis points more in duty on all loans raised from banks located in the state.

Stamp duty is applicable to all kinds of corporate loans, including term loans, working capital loans and overdrafts. Loans taken by individuals, including car loans and personal loans, also attract this duty.

If the state government did dilute its stance, many companies might look for credit outside Maharashtra, senior bankers pointed out. Individual borrowers, however, may not be able to take this route.

The state government has amended the Bombay Stamp Act, 1958, providing for stamp duty of Rs 2.50 per Rs 1,000 on all loan agreements.

Stamp duty is a type of tax paid for a transaction performed by way of a document or instrument under the provisions of state stamps Act and the Indian Stamp Act, 1899.

Maharashtra accounts for nearly 30 per cent of all loans disbursed in the country. The total credit offtake across the country is expected to be around Rs 3,00,000 crore (Rs 3,000 billion) in 2005-06.

This move is expected to bring in additional revenue of around Rs 225 crore (Rs 2.25 billion) to the state's coffers. The state government's annual revenue collection from stamp duty and registration fees is to the tune of Rs 2,900 crore (Rs 29 billion) .

The Indian Banks' Association (IBA) and the Bombay Chamber of Commerce and Industry have made representations to the state government, opposing the new levy. While the chamber of commerce has asked for its complete withdrawal, the IBA wants stamp duty scaled down.

Banks have not yet started levying this duty and are awaiting clarification from the state government.

The state government has communicated to IBA that the new provision is applicable to all loan agreements. But the IBA has written to the state government asking it "to make stamp duty more reasonable as 0.25 per cent is an exorbitant price to be paid." It has cautioned that the duty may compel corporates to seek credit from outside the state. Large and medium industries account for nearly 32 per cent of the total bank credit.

In its petition to State Finance Minister Jayant Patil, the Bombay Chamber of Commerce and Industry said, "For a single loan as per banking procedures, borrowers are required to enter into different types of agreements against the facilities granted. Thus, banks are taking different securities as hypothecation of goods, hypothecation of plants and machinery and mortgage by deposits of title deeds and personal guarantees of borrowers. The effect of the amended provisions of the Stamp Act is that, for an identical amount of loan, there are four or more different ad valorem stamp duties to be paid by the borrower."

IBA officials told Business Standard, "This is a legislative process and we are awaiting a word from the state government." The impugned amendment to the Stamp Act said stamp duty would be applicable to "creation of any obligation, right or interest and having monetary value, but not covered under any other article."

Mortgage loans would continue to attract a 0.50 per cent stamp duty for loans above Rs 10 lakh (Rs 1 million) and 0.25 per cent for loans up to Rs 10 lakh, bankers said.

Duty burden
  • All corporate & retail loans in Maharashtra to attract 0.25% stamp duty
  • Banks will pass on the cost to borrowers
  • The state accounts for 30% of loans disbursed in India
  • Borrowers may have to cough up Rs 225 crore extra in Maharashtra

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