By Anup P. Shah | Chartered Accountant
Laws and BusinessI. Stamp Duty Ready Reckoner 2010
1.1 The State Government has issued the Ready Reckoner for
computing the Fair Market Values for immovable property in Maharashtra for the
year 2010. As expected, the property rates in Mumbai have been increased by
10-20% compared to last year. The state government expects to mobilise Rs.
5,075 crore as revenue through stamp duty and registration fee by the end of
2009-10 and hence, it has hiked the rates to achieve its target. Stamp duty is
only second to VAT in terms of revenue earners for the State of Maharashtra.
Even though on one hand, the State has reduced the peak duty rate to 5% when
compared to other States, it has on the other hand, consistently increased the
Reckoner rates which have more than compensated for the fall in duty rates.
Thus, the State has been able to increase its Stamp Duty revenue year after
year. Readers may be interested to know that as far back as in 1993, the State
Government had given an undertaking before the Bombay High Court in the case
of Ashok Bansilal Mutha v State of Maharashtra & Ors. (Contempt Petition No.
28 of 1993), that it will not use the Ready Reckoner for calculating stamp
duty. In spite of this, the Sub-registrars always insist upon payment of duty
as per the Reckoner.
1.2 There are no changes in the Valuation Guidelines. The
rates mentioned in the Reckoner are on a per square metre of built-up area
basis, i.e., the same as previous years. There were news reports that the
Reckoner would be aligned with the amendment to the Maharashtra Ownership Flat
Act and that henceforth the property rates would be on a carpet area basis.
This would have enabled parity between the Flat Ownership Agreement and the
Reckoner rates. However, the 2010 Reckoner continues with the built-up area
pricing only. All other valuation parameters are the same as before.
1.3 When one considers the hike in the registration fee
along with the hike in the Reckoner rates, it is a double whammy for property
buyers. It is high time that the Ministry of Urban Development, along with the
Ministry of Housing and Urban Poverty Alleviation crack the whip by
threatening to refuse disbursement of funds to the State under the Jawaharlal
Nehru National Urban Renewal Mission (JNNURM). Only then can we expect some
relief and rationalisation of stamp duty rates and /or property values.
II.
Property Tax Calculation
2.1 Currently, the BMC levies a property tax based on the
Rateable Value of flats. Under the rateable value system, property tax is
based on the expected rent which a property can fetch. In the case of owner
occupied properties, the rateable value is arrived at on the basis of a
schedule of rates prepared by the BMC for different buildings. In these rates,
what is noteworthy is that newer buildings have a higher rateable value as
compared to older buildings. Accordingly, newer buildings, no matter where
located, would pay a higher tax as compared to older buildings, no matter
where located. Accordingly, a new building in Dahisar would pay higher
property tax as compared to an old building in Cuffe Parade.
2.2 To rectify this anomaly and in a bid to earn more
revenue, the BMC has devised the Capital Value System of levying property tax.
This new method is to be implemented from the next financial year, i.e., from
1st April, 2010. Under the Capital Value taxation, property tax will be levied
based on the current market value of the property and not on the basis of the
erstwhile rateable value.
2.2.1 To arrive at the market value, the rates given in the
Stamp Duty Ready Reckoner are sought to be used. Once the market value is
determined on this basis, it would remain frozen for 5 years. Thus, if the
Reckoner Rates for 2010 are adopted on 1st April 2010, then they would
continue till 31st March 2015.
2.2.2 The rate of property tax would be decided every year
by the BMC in its Annual Budget. It is expected to be 0.30% to 0.45% of the
Capital Value of the Property. for example, if the Capital value of a flat at
Churchgate is Rs. 2,00,00,000, then the property tax @ 0.45% will be Rs.
90,000 per annum.
2.2.3 In computing the property tax, various factors need
to be borne in mind, such as, carpet area, use of the property, etc. In a
subsequent Article, we will examine the Capital Value System in greater depth.
2.2.4 After an increase in Reckoner Rates, removal of the
cap on registration fees, flat buyers / owners in Mumbai have been gifted one
more exploitive tax by the Government in 2010. The New Year could not have
gotten off to a better start for the real estate sector!
III. Stamp Duty on Agreements not provided for
3.1 A few years ago, Schedule I to the Bombay Stamp Act was
amended to introduce Art. 5(h) (A) which provides for a duty on any Agreement
not otherwise provided for under the Schedule and creating any obligation,
right or interest and having a monetary value. The duty was 0.1%.
Thus, all Agreements which created a monetary obligation or
an interest and which were not otherwise covered under the Act were chargeable
with duty under this Article. These included Share Subscription Agreements for
PE Funding, etc.
3.2 The 2009 Amendment Act has increased the duty under
this Article. Accordingly, the stamp duty would be 0.1% in case the value of
the agreement is Rs. 10 lakhs or less. In the case of an agreement which
exceeds Rs. 10 lakhs in value, the duty would now be @ 0.2% of the amount
agreed in the contract. E.g., in case a real estate fund agrees to invest Rs.
100 crores in a real estate project, the Share Subscription Agreement would
now be stamped with a duty of Rs. 20 lakhs.
