How to Calculate Stamp Duty in Sri Lanka?

Introduction

You’ve finally found your dream property in Sri Lanka. The keys are almost in your hands, and the excitement is real. But wait, stamp duty?! What is it, and why does it stand between you and your new home?

Use our stamp duty calcluator to get an estimation of how much stamp duty you have to pay

Stamp duty is a tax imposed on certain legal documents, including property transactions. It is a crucial and a mandatory step when it comes to buying, selling, or leasing real estate in Sri Lanka. In this blog, we will break down how stamp duty applies specifically to property transfers, leases and mortgages helping you understand how to calculate it and ensure compliance.

A Bit of Historical Background

Sri Lanka first introduced a duty on official documents under the Stamp Duty Ordinance of 1909. This was later replaced by the Stamp Duty Act No. 43 of 1982.Although, in 2002, the government temporarily put it into hold, it was reintroduced in 2006, considering only for a specific list of taxable instruments. Currently, stamp duty is only applicable to those specified transactions, meaning that unless you are dealing with one of them, you do not have to worry about paying this tax.

Those specified instruments are :

• an affidavit,
• a policy of insurance,
• a warrant to act as notary public,
• a periodic license to carry on trade, business, profession or vocation,
• a claim, demand or request made by a service provider from the holder of a credit card, for the payment of a stated sum of money, due in respect of a transaction entered into using such credit card,
• a mortgage for a definite sum of money which affects a property,
• a promissory note,
• a lease or hire of any property,
• a receipt or discharge given for any money or other property.

As per the above list, it is visible that you are under the obligation of paying a stamp duty, especially with matters related to properties.

Why Is Paying Stamp Duty Important?

Whether you’re buying, selling, or leasing a property, stamp duty plays a significant role in legalizing the transaction. It is essential because:

• It serves as proof of property acquisition or sale, making the transaction legally enforceable.
• It helps prevent fraud by ensuring documents are officially recorded.
• It avoid legal complications and unexpected costs
• It contributes to public revenue, which funds essential services.

When executing deeds, a stamp duty is imposed by the government, which must be paid by you. This duty is usually calculated as a percentage of your property’s value. The determination of the property’s value for this purpose is carried out by the Inland Revenue Department. This process is known as obtaining a stamp duty opinion.

Who Pays Stamp Duty?

The responsibility for paying stamp duty depends on the type of transaction:

• Deed of Sale – The buyer usually pays the stamp duty.
• Gift Deed – The recipient (donee) pays the stamp duty, but if the recipient is a minor, the donor can make the payment.
• Lease Agreement – Typically, the lessee (tenant) pays.
• Mortgage Deed – The borrower (mortgagor) is responsible.

How to Calculate Stamp Duty

1. Deed of Transfer/Sale of Property
   • The stamp duty payable for a sales deed is calculated as follows:
   • For the first LKR 100,000 of the property value → 3% of the total value.
   • For the remaining value → 4% on the excess amount.
   • Example: Mr. Perera finds a beautiful house owned by Mrs. Christina and decides to buy it for LKR 2,000,000. However, before the transaction is complete, he learns about stamp duty.
     • First LKR 100,000 → 3% = LKR 3,000 Remaining LKR 1,900,000 → 4% = LKR 76,000
     • Total Stamp Duty = LKR 3,000 + LKR 76,000 = LKR 79,000
     • Since Mr. Perera is the buyer, he is responsible for paying LKR 79,000 in stamp duty.

2. Gift Deed
   • The value of the gifted property is determined based on the date it was acquired by the donor.
     If the donor acquired the property before March 31, 1977, the stamp duty is calculated on the value which is lower of the following two values:
     • The property’s value as of March 31, 1977, including any improvements made thereafter.
     • The property’s value at the time of executing the gift deed.
   • If the donor acquired the property after March 31, 1977, the stamp duty is calculated on the value which is lower of:
     • The property’s value on the acquisition date, including any improvements made thereafter.
     • The property’s value at the time of executing the gift deed.
   • The stamp duty payable for a gift deed is calculated as follows:
     • For the first LKR 50,000 of the property value → 3% of the total value.
       For the remaining value → 2% on the excess amount.
     • Example: A grandfather decides to gift his old family home to his grandson. The house was valued at LKR 1,500,000 at the time of gifting.
       First LKR 50,000 → 3% = LKR 1,500 Remaining LKR 1,450,000 → 2% = LKR 29,000 Total Stamp Duty = LKR 1,500 + LKR 29,000 = LKR 30,500
     • Since this is a gift, the donee (grandson) pays the stamp duty unless he is a minor, in which case the donor (grandfather) can pay it.

3. Lease Agreement

• If the monthly rent is LKR 5,000 or less, no stamp duty is required.
• If the monthly rent exceeds LKR 5,000, the stamp duty is 1% of the lease value.
• The lease value is calculated by multiplying the monthly rent by the lease period.
  (monthly rent x lease period)
• Example: Sarah rents an apartment for LKR 20,000 per month for 2 years (24 months).
  Lease value = LKR 20,000 × 24 = LKR 480,000 Stamp Duty = 1% of LKR 480,000 = LKR 4,800
• Since the rent is above LKR 5,000, Sarah, as the tenant (lessee), must pay LKR 4,800 in stamp duty.

2. Mortgage Deed
   • For loans taken from licensed commercial banks for building a house, purchasing land, or buying a house, stamp duty is not required for amounts up to LKR 3 million.
   • If the mortgage value exceeds LKR 3 million, the stamp duty is 0.1% on the excess amount.
   • For all other mortgage deeds, the stamp duty is 0.1% of the mortgage value.
   • Example: Priya takes a loan of LKR 4 million from commercial bank to buy a land in Maharagama.
     Loan amount over LKR 3 million = LKR 1 million Stamp Duty = 0.1% of LKR 1 million = LKR 1,000
     Priya needs to pay LKR 1,000 in stamp duty.

4. Related Party Transfer Deeds

• Stamp duty for property transfer depends on the ownership nature and property value.
• If the parties are joint or co-owners and if the properties have equal value, the stamp duty is LKR 100.
• If the properties have different values, stamp duty is paid on the difference in value, similar to a sales deed.
• If the parties are not joint owners ans if the properties have equal value, stamp duty is calculated as if it were a sales deed.
• If the properties have different values, stamp duty is charged on the higher-valued property, similar to a sales deed.
  • Example 1 (Equal Value, Co-owners): Two brothers, John and Sam, decide to swap their apartments, both worth LKR 3 million each.
    • Since the property values are equal, stamp duty is just LKR 100.
  • Example 2 (Different Values, Co-owners). John’s apartment is worth LKR 3 million, and Sam’s is worth LKR 4 million.
    • Difference = LKR 1 million Stamp duty follows the sales deed calculation: First LKR 100,000 → 3% = LKR 3,000 Remaining LKR 900,000 → 4% = LKR 36,000 Total Stamp Duty = LKR 3,000 + LKR 36,000 = LKR 39,000
    • Sam (who gets the higher-valued property) must pay LKR 39,000 in stamp duty.
  • Example 3 (Not Co-owners, Different Values): If John and Sam were not co-owners, the stamp duty would be charged on the higher-value property (LKR 4 million) just like a sales deed.

Modes of Payment

• You have mainly 2 options of paying Stamp Duty in Sri Lanka. You can either paste stamps on documents to the same value that should be paid or directly paying single Stamp Duty Fees to the Inland Revenue Department.

Final Thoughts

• Stamp duty might not be the most exciting part of buying or transferring property, but it’s a mandatory step you can’t afford to overlook. Understanding how it’s calculated helps you avoid surprises, legal hiccups, and unnecessary penalties. Whether you’re buying your dream home, leasing an office, or gifting family property, knowing your stamp duty obligations ensures a hassle-free process.
• However, let’s be honest, this process itself can get complicated! Each transaction has its own laws, rates, and conditions, which can be tricky to navigate. To make sure everything is handled smoothly and professionally, it’s always a wise idea to consult a legal professional. They can guide you through the process, ensuring compliance while saving you time and stress.
• So, before you finalize any property transaction, take a moment to double-check your stamp duty requirements and when in doubt, seek expert advice. It can be a small step but save you big trouble down the road!