TAXES AND STAMP DUTY RATES -MANJU FOUNDATIONS

TAXES AND STAMP DUTY RATES

Stamp Duty

7.6.27 There is a direct link between Registration
Act and Stamp Act. Stamp duty needs to be paid
on all documents which are registered and the rate
varies from state to state. With stamp duty rates of 13 per cent in Delhi, 14.5 per cent in Uttar Pradesh
and 12.5 per cent in Haryana, India has perhaps
one of the highest levels of stamp duty. Some states
even have double stamp incidence, first on land
and then on its development. In contrast the maximum
rate levied in most developed markets whether
in Singapore or Europe is in the range of 1-2 per
cent. Even the National Housing and Habitat Policy,
1998, recommended a stamp duty rate of 2-3 per
cent. Most of the methods to avoid registration are
basically to avoid payment of high stamp duty.
7.6.28 Another fallout of high stamp duty rates is
the understatement of the proceeds of a sale. This
is also linked to payment of income tax and capital
gains tax. When registration has not been effected,
a transfer is not deemed to have taken place and
hence capital gains tax can be totally avoided. Thus,
the present provisions in various laws and their poor
implementation have led to a situation where there
is considerable financial loss to the exchequer on
account of understatement of sale proceeds, nonregistration
and consequent non-payment of stamp
duty and avoidance of capital gains tax.
Property Tax
7.6.29 Property tax is a levy charged by the
municipal authorities for the upkeep of basic civic
services in the city. In India it is the owners of
property who are liable for the payment of municipal
taxes whereas in countries like the United Kingdom,
the occupier is liable. Generally, the property tax is
levied on the basis of reasonable rent at which the
property might be let from year to year. The reasonable
rent can be actual rent if it is found to be fair
and reasonable. In the case of un-let proper-ties,
the rental value is to be estimated on the basis of
letting rates in the locality. In the case of special
class of properties like cinema theatres, it is
estimated by adopting the accountancy method
under which the rent is a certain percentage of the
total average turnover during the year, i.e. actual
receipts of the sale of tickets (excluding
entertainment duty).
7.6.30 However, some cities follow a different
system for the levy of property tax. In Patna , local
properties have been categorised into three groups,(i) reinforced cement concrete (RCC) buildings;
(ii) pucca building; and (iii) pucca buildings with A.C
or C.I. sheet roof. The rental value per sqr.m. for
every building has been fixed according to their
status, location, type of construction and user etc.
This system has been upheld by the Supreme Court
and has been appreciated by international bodies.
In Delhi, property tax of un-let properties is based
on rental value, which is arrived at on the basis of
capital investment in land and buildings. In the case
of rented properties, the rent recovered is taken as
the base.
7.6.31 The rental value system has its own disadvantages.
There is lot of discretion with the
assessing officer. There is no buoyancy of revenues
because of the restrictions imposed by the Rent
Control Act. As a result, the rateable value of the
properties increases only on account of alterations
to or extension of the existing properties or on
account of construction of new properties. As a
result of the Rent Control Act, the income of the
municipal corporations has become static. The
municipal corporations are, therefore, in favour of
an alternative method of levying of property tax
which will de-link it from rent.
7.6.32 The Municipal Corporation of Greater
Mumbai commissioned the Tata Institute of Social
Sciences to undertake a study to recommend an
alternate system for levy of property tax. The study
has recommended a capital value based system of
taxation. The advantages of this system are:
(i) It results in revenue buoyancy, i.e. tax
revenue can keep pace with inflation and
cost of living since capital value can be
revised after five years based on the
market value of the residential properties
given in the Government ready reckoner
for stamp duty.
(ii) The system is transparent and simple.
(iii) It is objective and eliminates/reduces the
element of discretion.
(iv) It provides equitable assessment among
different property owners.7.6.33 The study has also developed a formula
to work out the capital value and amount of tax:
Capital Value= Market value (MV) * Carpet area of
the property * Weight for type of construction *
Weight for age.
Tax= Capital Value * tax rate * weight for user
category.
7.6.34 While assigning weights, concessions
have been given to buildings like chawls, semipermanent
structures, those constructed prior to
1985 and those falling in the category of tenements
having less than 225 square feet carpet area and
belonging to the economically weaker sections.
Similarly, weights have also been assigned to the
user category in a progressive manner. The details
of the weights assigned to each category may be
seen at Annexure-7.6.1.
Entertainment Tax
7.6.35 The tax rates in the entertainment industry
are among the highest in the world. Though some
State Governments are waiving entertainment tax
on multiplex theatres for periods ranging from three
to ten years, on the whole tax on film theatres
continues to be high. Lowering of these rates will
not only benefit the entertainment industry, which
has an annual turnover of Rs. 400 crore, but will
also promote real estate development in the form
of theatres in cities, towns and even villages.
LAND MARKET ISSUES
7.6.36 It is estimated that removing land market
barriers can contribute an additional 1 per cent to
India’s GDP growth rate.3
Titles and Records
7.6.37 Another important issue in real estate
development is that of title to property. In India, the
State does not certify a title to housing or land
property. The revenue records are not documents
of title, and ownership is established only by the
sequence of earlier transfers. Thus, the fundamental
question of title has often led to enormous
litigation. At present there are three legislations which have a bearing on property transactions
involving transfer of ownership of proprietary interest.
These are the Transfer of Property Act, the
Indian Registration Act and the Indian Evidence Act.
7.6.38 An examination of the provisions of these
Acts reveals a number of inadequacies. Most of the
sale transactions are done through the power of
attorney route to evade transaction costs like
registration, stamp duties, property tax etc. The
system, as it exists, imposes a responsibility on the
part of the purchaser with regard to the inspection
of the title. The result is tenuous titles to land and
non-transparency in property transactions, thereby
hampering large-scale real estate development.
7.6.39 Titles to land have become necessary for
more efficient handling of land title documents, to
provide greater security of tenure for those in
occupation of land, to keep pace with the greater
demand for re-conveyancing, for better support for
mortgaging and investment, to face the steady
increase in the number of private and public users
who make routine enquiries about land ownership.
7.6.40 There is an urgent need to ensure compulsory
registration of land deeds and also to computerise
such records so as to create a database. The
Andhra Pradesh experience is a good example to
begin with where registration of sale of land/property
is achieved within a month. The Tenth Plan Working
Group on Information Technology for Masses has
recommended computerisation of land records all
over the country with computerised land/property
documents being available to the public at all levels,
including in villages, by 2005. Through online
documentation of land records, hyper links with
court registries of the district or the State can be
developed, so that the unwary buyer can get immediate
information of any pending litigations.
7.6.41 In this context, the Registration and Other
Related Laws (Amendment) Act, 2001 has
proposed the compulsory registration of documents
relating to part performance of contracts concerning
immovable property (covered by Section 53A of the
Transfer of Property Act), in order to prevent loss
of revenue to the states. The Act also s eeks to curb the practice of avoiding registration of deeds by
transferring property through power of attorney and
agreements of sale. Though this Act has received
the assent of the President and has been notified
in the official gazette, it will come into force only
from a date to be notified by the Government.