No Stamp Duty on the New Flat You Receive in Redevelopment

Your Permanent Alternate Accommodation Agreement (PAAA) for the rehab flat is chargeable with stamp duty of one hundred rupees — not full conveyance duty — provided the society's development agreement has itself been duly stamped. The provision is Section 4(1) of the Maharashtra Stamp Act, 1958, which says that where several instruments are employed to complete one development agreement, only the principal instrument bears Schedule I duty and "each of the other instruments shall be chargeable with a duty of one hundred rupees". The Bombay High Court applied exactly this to redevelopment in Adityaraj Builders v. State of Maharashtra. Duty above Rs 100 is payable only on additional area you actually purchase from the developer for a stated price — not on extra area that simply comes to you from FSI or TDR.

This page gives you the section numbers to quote at the sub-registrar's counter, the recital your PAAA must contain, and the forum and deadline for each thing that can go wrong. It is general legal information, not advice on your own facts, and the ad valorem rates it deliberately does not quote must be confirmed for your date of execution.

Source: Maharashtra Stamp Act, 1958, sections 4, 31, 32, 34 and 53; Registration Act, 1908, sections 17, 23, 25, 71, 72 and 77; Adityaraj Builders v. State of Maharashtra, Bombay High Court.

Stamp duty in plain language: what it actually taxes

Stamp duty is a tax the State of Maharashtra charges on certain documents — most importantly, documents that transfer ownership of immovable property. When you buy a flat in the open market, the sale deed (in law, a "conveyance") is stamped at an ad valorem rate, meaning a percentage of the flat's value. That value is not left to the buyer and seller to write down as they please; it is measured against the government's published ready reckoner rates (the Annual Statement of Rates) for that locality, so duty cannot be dodged by putting a low figure on paper. The article of Schedule I that charges a conveyance is Article 25, and a development agreement is charged under Article 5(g-a) of Schedule I read with Article 25. We do not print a percentage on this page on purpose: the ad valorem rate, the metro cess and any local body surcharge are revised from time to time and differ by area, so the only figure worth acting on is the one in force on your date of execution. Get it from the sub-registrar's office or from igrmaharashtra.gov.in, and read it alongside our note on ready reckoner rates in redevelopment.

The key idea for redevelopment is this: stamp duty follows a transfer of ownership for consideration. Where there is no fresh transfer — where you keep the very rights you already held — the logic that justifies charging the full percentage falls away. Understanding that one sentence explains almost everything below.

Why a rehab flat is not a fresh purchase

Think about what actually happens in redevelopment. You already own your flat, the undivided share of land that comes with it, and your membership rights in the society. The old building is demolished and a new one is constructed on the same plot, usually with extra floor space index (FSI) that funds the whole project. When the new building is ready, you are handed back an equivalent — and typically larger — flat for the same ownership you never gave up. You did not sell your flat to a stranger and buy a different one; you exchanged your old home for its rebuilt replacement.

Because there is no genuine sale of your existing entitlement, charging full purchase stamp duty on the rehab flat would tax you twice for property you never stopped owning. The statute avoids that result mechanically. Schedule I duty is charged once, on the development agreement between the society and the developer — the principal instrument that sets the project in motion. Every other instrument used to complete the same transaction, your PAAA included, is chargeable with Rs 100 under Section 4(1). One redevelopment, one incidence of Schedule I duty, and a Rs 100 stamp on each member's agreement.

Note the precondition carefully, because everything turns on it: the protection runs from the principal instrument having actually borne its duty. If the development agreement is unstamped or under-stamped, there is no properly stamped principal instrument to hang Section 4(1) on. Before any member signs a PAAA, the committee should have seen the development agreement's stamp-duty challan and its registered Index II.

Section 4(1): the provision that does all the work

The Rs 100 figure is not a discretionary concession that an officer can grant or withhold. It is the operation of Section 4 of the Maharashtra Stamp Act, 1958. Sub-section (1) reads:

"Where, in the case of any development agreement, sale, mortgage or settlement, several instruments are employed for completing the transaction, the principal instrument only shall be chargeable with the duty prescribed in Schedule-I for the conveyance, development agreement, mortgage or settlement, and each of the other instruments shall be chargeable with a duty of one hundred rupees instead of the duty (if any) prescribed for it in that Schedule."

Read it in three steps. There is one transaction — your building's redevelopment. It is completed by several instruments — the development agreement, the power of attorney, and one PAAA for every member. Only the principal instrument pays Schedule I duty. Every other instrument pays Rs 100. Your PAAA is one of the others.

Two further sub-sections matter more than most societies realise. Section 4(2) lets the parties themselves nominate which instrument is the principal one. Section 4(3) says that if the parties do not nominate one, the officer before whom the instrument is produced decides — and the proviso to it fixes the duty on the instrument so chosen at "the highest duty which would be chargeable in respect of any of the said instruments employed". In plain terms: if your papers are silent, a stamp officer picks, and the picking is not obliged to go your way. Nominating the development agreement as the principal instrument, in writing, in both documents, is a five-minute drafting step that protects every member of the society.

The judgment: Adityaraj Builders v. State of Maharashtra

The Bombay High Court applied Section 4(1) directly to redevelopment PAAAs in Adityaraj Builders v. State of Maharashtra & Ors., decided by a Division Bench of Justice G. S. Patel and Justice Neela Gokhale in Writ Petition No. 4575 of 2022 with connected petitions, reported as decided on 17 February 2023. Three things came out of it:

• Once the development agreement is stamped, the PAAA cannot be separately assessed to stamp beyond the Rs 100 requirement of Section 4(1), so far as it relates to rebuilt or reconstructed premises in lieu of the member's old premises.
• A PAAA is to be additionally stamped only to the extent that it provides for a purchase by the member, for actual stated consideration, of additional area over and above what is made available in lieu of the earlier premises.
• Extra built-up area that reaches a member through FSI or TDR, rather than by being bought for a price, is not separately stampable on that ground.

The Court directed that the circulars of the Inspector General of Registration and Controller of Stamps dated 23 June 2015 and 30 March 2017 — which had required PAAAs to be stamped as conveyances — be quashed. The IGR then issued a circular dated 26 July 2023 cancelling those two circulars and directing offices to give effect to the position. Those are the two dates to quote if a counter clerk cites an old circular at you.

Source: Maharashtra Stamp Act, 1958, section 4(1), (2) and (3); Adityaraj Builders v. State of Maharashtra & Ors., Bombay High Court, WP No. 4575 of 2022 and connected petitions, G. S. Patel and Neela Gokhale JJ; IGR & Controller of Stamps, Maharashtra, circular dated 26 July 2023. Verify the certified copy of the judgment and the circular text before relying on either in a proceeding.

The PAAA: where your rehab flat is recorded

The document that records your right to the new flat is usually the Permanent Alternate Accommodation Agreement (PAAA), signed between you and the developer. It sets out the flat number, floor, carpet area, amenities, the rent or corpus you are owed, and — crucially — that this flat is your permanent alternate accommodation in exchange for your existing entitlement. Because it is one of the "other instruments" completing the development-agreement transaction, it carries Rs 100 stamp duty under Section 4(1) rather than Article 25 conveyance duty.

But Section 4(1) only bites if the document shows on its face that it belongs to that transaction. A PAAA drafted as a free-standing sale agreement, with no reference to the development agreement and no nomination of a principal instrument, invites the officer's discretion under Section 4(3) — and the proviso to Section 4(3) then charges the highest duty available. This is where societies lose money, and it is entirely preventable at drafting stage.

Four things your PAAA must say, before anyone signs

Hand this list to the society's advocate. Ask for each item to appear in the recitals or the operative clauses, not in a covering letter.

1. Identify the development agreement. Its date, the sub-registrar's office, the serial or document number and the year of registration.
2. Nominate the principal instrument under Section 4(2). A clause recording that the parties agree the registered development agreement is the principal instrument for the transaction, and that this PAAA is one of the several instruments employed to complete it, chargeable under Section 4(1) with duty of one hundred rupees. Put the mirror clause in the development agreement too.
3. Separate the two areas by number. State the carpet area of the old flat, the carpet area given in lieu of it (rehab plus any FSI- or TDR-derived addition granted without price), and — as a separate line — the additional area, if any, being purchased and its stated consideration. Never fold the purchased area into one combined figure; a single blended number is what makes the whole document look like a conveyance.
4. State that no consideration passes for the rehab component. One sentence recording that the replacement premises are provided in lieu of the member's existing premises and not for a price.

A vague or blended agreement is one of the common agreement mistakes that creates trouble at possession, and here it costs real money.

Stamp duty and registration are two separate charges. Section 4(1) caps the stamp duty at Rs 100. It says nothing about registration fee, which is fixed by notification under the Registration Act, 1908 and is revised from time to time. Section 17 of that Act makes registration of the development agreement, the PAAA and the final conveyance compulsory. Ask the sub-registrar's office for the registration fee applicable to your document on your date of execution — do not assume it is included in the Rs 100.

Rehab area versus extra area you choose to buy

The one situation where you do pay meaningful stamp duty is when you take additional area beyond your existing entitlement — for example, buying an extra 150 sq ft from the developer, or upgrading to a flat larger than your entitlement supports. That extra portion is a genuine purchase from the developer, and duty is charged ad valorem on it. But the line is drawn by whether a price is paid, not by whether the flat got bigger. If your new flat is larger because the scheme's FSI or TDR allowed a larger rehab unit, and you paid nothing for that increase, it stays on the Rs 100 side of the line. Only area you actually buy, for a stated consideration, crosses over. A market purchase of extra area can also attract Goods and Services Tax on the builder's construction service, which we cover in GST on redevelopment.

What is chargeable and what is not

Source: Maharashtra Stamp Act, 1958, section 4(1) and Schedule I Articles 5(g-a) and 25. The ad valorem rate under Article 25 is deliberately not stated here — confirm the rate, metro cess and any local surcharge in force on your date of execution with the sub-registrar or on igrmaharashtra.gov.in.

If the counter still demands full duty: where to go, what to file, by when

Knowing the law is not the same as getting it applied at a counter. If a sub-registrar or stamp officer insists on assessing your PAAA as a conveyance, work through these steps in order. Do not simply pay under protest and hope — an over-payment is far harder to recover than a refusal is to challenge.

Step 1 — produce the paper trail at the counter

Carry, in one folder: the registered development agreement, its stamp-duty challan and Index II, the PAAA showing the Section 4(2) nomination clause, and the area split. Ask the officer to record the objection in writing. If an old circular is cited, the answer is that the circulars dated 23 June 2015 and 30 March 2017 were directed to be quashed and were cancelled by the IGR circular dated 26 July 2023.

Step 2 — get it adjudicated before you execute, not after

The Act provides a way to settle the duty question in advance. Under Section 31 of the Maharashtra Stamp Act, 1958 you may bring the instrument to the Collector of Stamps and apply for his opinion on the duty with which it is chargeable. He determines it, and issues a certificate under Section 32 which is then conclusive as to the duty. In Mumbai and Mumbai Suburban the Collector of Stamps sits in his own office; in other districts the Joint District Registrar acts as Collector of Stamps at the district headquarters. Applications are made through the state adjudication portal at adjudication.igrmaharashtra.gov.in, which states an application fee of Rs 1,000 — confirm the fee and the current document checklist on the portal before you apply, as both are revised. File a true copy or abstract of the instrument with an affidavit that all facts affecting chargeability are truly set out.

Doing this for the first PAAA in the building, before the rest are executed, is the single highest-value move a committee can make on this subject. One adjudication certificate settles the position for every member behind it.

Step 3 — appeal, within the limitation period

Before leaving any counter that has refused you, ask for the written reasons. Under Section 71 of the Registration Act, 1908 a refusing sub-registrar must record an order of refusal with reasons in Book No. 2, endorse "registration refused" on the document, and give a copy of the reasons to anyone executing or claiming under it, on application and without payment. Without that copy your 30-day appeal has nothing to attack.

Source: Maharashtra Stamp Act, 1958, sections 31, 32, 32B and 53; Registration Act, 1908, sections 25, 71, 72 and 77. Limitation periods are stated as they appear in the sections — confirm the current text and any amendment before filing, and check whether a further appeal now lies from a Chief Controlling Revenue Authority order.

What under-stamping costs if it is only discovered later

The reason to fix this before signing, rather than after, is Section 34 of the Maharashtra Stamp Act, 1958: an instrument that is not duly stamped shall not be admitted in evidence. Your PAAA becomes unusable in a dispute until the deficiency is made good. And the section charges a penalty of 2 per cent of the deficient portion of the duty for every month or part of a month from the date of execution, with a proviso capping the penalty at double the deficient duty.

Source: Maharashtra Stamp Act, 1958, section 34 and its provisos. Figures in the example are illustrative arithmetic on the statutory rate, not a rate for any particular document.

Three different money items — do not confuse them

Members often lump together three separate things and then worry unnecessarily. They are distinct, they are governed by different laws, and they fall due at different times.

• Stamp duty — the state tax on the document. Rs 100 on your PAAA under Section 4(1) of the Maharashtra Stamp Act, 1958; ad valorem under Article 25 only on additional area you actually buy.
• Registration charge — a separate fee for officially recording the document, under the Registration Act, 1908, fixed by notification and revised from time to time. It is payable in full even though the stamp duty is Rs 100, and Section 4(1) does not touch it.
• Capital gains tax — an income-tax question about profit, not a document tax. Handing your old flat to the developer for a new one is, in tax law, a transfer that can trigger capital gains. For an individual or Hindu Undivided Family (HUF), Section 45(5A) of the Income-tax Act, 1961 provides that the gain is generally taxed in the year the project's completion certificate is issued — not on the day you signed the agreement — which spreads out the liability. This is a technical area with conditions, so read our note on capital gains on redevelopment and take advice on your own numbers.

Keeping these three separate helps you read a developer's offer honestly. A proposal that promises "no stamp duty" is describing only the first item, and says nothing about registration or your personal tax position.

Documents to keep as proof

Section 4(1) applies because your PAAA is provably part of the same transaction as a duly stamped development agreement, and because the rehab area is provably a replacement rather than a purchase. Both propositions have to be evidenced from paper. Keep:

• The registered Development Agreement, plus its stamp-duty challan and Index II — the proof that the principal instrument bore its duty.
• The committee resolution nominating the principal instrument under Section 4(2), with its date and number.
• Any Section 32 adjudication certificate obtained from the Collector of Stamps on the specimen PAAA.
• Your registered PAAA, with the allotment letter and possession letter for the new flat.
• Old ownership papers — your earlier agreement, the society share certificate, and society records showing your original flat and carpet area.
• Stamp duty and registration receipts, and the Index II, for both the development agreement and your PAAA.
• The Occupancy Certificate (OC) for the new building, which also matters for the capital-gains timing above.
• If you bought extra area, the separate agreement and stamp duty receipt for that portion.

What this means for your society — practical steps

For most members the message is reassuring: getting your reconstructed flat back carries Rs 100 of stamp duty, not conveyance duty. The value lies in getting the paperwork and the sequence right. Here is the checklist, in the order the steps have to happen.

• See the development agreement's stamp challan first. Before a single PAAA is executed, the committee should hold the registered development agreement, its stamp-duty challan and its Index II. Section 4(1) protects the PAAA only because the principal instrument has borne the duty.
• Minute the Section 4(2) nomination. Pass a managing committee resolution, and place it before the general body, recording that the registered development agreement dated ___ is nominated as the principal instrument for the transaction and that every member's PAAA is one of the several instruments completing it under Section 4(1). Keep the resolution number and date; a copy goes into each member's file and is produced at the sub-registrar's counter if the point is raised.
• Adjudicate the first PAAA. Have one specimen PAAA adjudicated under Section 31 and obtain the Section 32 certificate before the remaining members sign. It converts an argument into a document.
• Register everything, and diarise four months. Register the development agreement and every PAAA, and present each within four months of its execution under Section 23. Rs 100 stamp duty does not reduce the duty to register.
• Bill extra area separately and by number. Area beyond entitlement gets its own recital, its own stated consideration and its own ad valorem duty, so there is never a dispute about what was taxed and why.
• Pin down who pays. A well-structured offer states clearly whether the developer bears stamp duty, registration and incidental charges on member agreements. Watch this alongside the red flags in a development agreement, and line it up with when you actually receive your flat and money in our guide to possession and corpus.
• Get the agreement reviewed before signing. Have the development agreement and PAAA vetted — our free tender and agreement review service exists for exactly this. And when you weigh competing proposals, our offer comparison tool lets you place them side by side, while the FSI calculator helps you sense-check the buildable potential a developer is relying on.

If your society is only starting to evaluate redevelopment, you are welcome to register your society for a plain-language view tailored to your building. Remember that this article is general information, not legal or tax advice for your specific situation — the ad valorem rate, the registration fee and your personal capital-gains position all depend on current law and your own facts, so consult a lawyer and a tax adviser before you sign.