Higher stamp duty may dampen buyers’ spirit

Proposed hike in guidance value for property registrations may impact realty market significantly. A look by R.P. Deshpande

By the time you read this article, the State government might have increased the guidance value for property registrations, making a big hole your pocket.

For transfer of immovable properties from one person to another, by way of sale, gift, partition, release, exchange or any other mode, it is mandatory to register such conveyance deeds (like Sale Deed, Gift Deed etc.) at the jurisdictional Sub-Registrar’s office.

This attracts stamp duty and registration cost on the sale consideration or property value, as the case may be. The stamp duty and registration cost is a major revenue earner for the exchequer.

Presently the stamp duty and registration structure is indicated in the table below.

In village panchayat areas, the cess rate is 3% and hence the total stamp duty and registration cost will be 6.65% of property value. The purchaser needs to submit stamp duty and registration charges in 3 separate Demand Drafts (DDs) favouring the jurisdictional Sub-Registrar, one for amount calculated @ 5.1% (stamp duty + cess) of property value, second one for 0.5% of property value (surcharge) and third for 1% of property value (registration cost).

If stamp duty of 0.1% has been paid while executing the sale agreement, it will be set-off against stamp duty payable at the time of registration of sale deed.

Since ages, sellers and purchasers have been declaring lesser value than actual sale consideration to save on stamp duty and registration costs, thus causing huge loss to the government. By declaring lesser sale price, the purchaser saves on stamp duty and registration costs (6.6% on the undisclosed sale value) and the seller saves on capital gains tax, which arises on the sale of capital asset (property).

It has become a routine procedure to collect differential amount (i.e., actual consideration less guidance value calculation) in cash, which has significantly contributed to unaccounted money in the economy.

Hence to optimise revenue collections from stamp duty and registration costs and to curb generation of unaccounted money, the State government, through the Department of Stamps and Registrations, issues guidance value (in some States, known as stamp duty value or circle value) for all kinds of properties locality wise. For arriving at land value, due weightage will be given to zone, road width, corner property, commercial value etc. and to arrive at the value of building, type of construction, specifications, age of building, depreciation etc. are considered.

The aim of fixing guidance value is to assess the nearest market value of the property. To give the benefit of doubt to sellers and purchasers, normally the guidance value fixed would be 10-20% less than market value.

Considering the increase in property value over years, periodically (normally once in two years), the Department of Stamps and Registrations revises the guidance value of all properties.

Verification

The guidance value for any property can be verified from the Sub-Registrar’s office or from books (published and printed by private publications) available in book stores.

It may be noted that the Sub-Registrar may allow for any registration, if the property value shown is less than the guidance value fixed by the government, but makes it mandatory to pay stamp duty and registration costs calculated as per guidance value. In such a case, as per Income Tax rules, the difference between the actual consideration and guidance vlue is taxable under ‘Income from Other Sources’ in the hands of the buyer.

On the other hand, when the actual consideration is less than guidance value, the guidance value would be deemed as sale consideration and accordingly seller has to make provision for Capital Gains Tax.

If sale consideration shown is more than the guidance value, the Sub-Registrar will welcome such an instrument and charge stamp duty and registration cost on actual consideration, thus earning more revenue for the government.

It is reported that the guidance value will go up by 5-20%.

Extra burden

Let us see what would be the extra burden of stamp duty on properties worth ₹50 lakh at different localities in Bengaluru with 5%, 10% and 20% increase in stamp duty and registration costs (see table at left).

You don’t have any choice than to embrace the change in terms of increase in guidance value.

The author can be contacted at deshpande@propseva.com