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Update on April 2, 2019: The Maharashtra government has decided to keep the Ready Reckoner (RR) rates across Maharashtra unchanged, going into 2019-20. Speaking about the move, Niranjan Hiranandani, national president, NAREDCO, said that the real estate industry welcomes the government’s decision. “It would have really made a bigger difference, if the state government had considered a ‘price correction’, following last year’s amendment to the Bombay Stamp (Determination of True Market Value of Property, 1st amendment) Rules, 2018, which allows the chief controlling revenue authority to either increase or decrease the RR rates. In locations where the rates have fallen lower than the prevailing RR rates, both, the buyer and seller, have to pay tax on the RR rate, which is higher than the rate at which the actual transactions are taking place. This will impact affordable housing the most and I hope the anomaly will be dealt with at the earliest.”
Update on March 12, 2019: The government of Maharashtra, on March 1, 2019, announced an amnesty scheme with respect to the penalty that can be levied for insufficient payment of stamp duty made in the past. The scheme proposes to limit the penalty payable on certain transactions to 10% of the deficient stamp duty, instead of the 400% which can be levied in normal course by the government. The scheme applies to all the transactions of sale or transfer of tenancy rights, of residential houses within Maharashtra and is available only for documents that have been executed on or before December 31, 2018. The application, along with the instrument and supporting documents, has to be made within a period of six months from March 1, 2019, i.e., by August 31, 2019, the period up to which the scheme will remain open.
Stamp duty, which is levied by states, is payable for the transfer of a property.
Initially, this stamp duty was calculated on the basis of the agreement value. However, this resulted in malpractices, such as underreporting of the transaction value, thereby, depriving state governments of revenue. To stop this malpractice, the various governments started issuing guidelines for minimum values on which the stamp duty would be payable, through the notification of ready reckoner rates or circle rates. However, if the value of the consideration stated in the agreement is higher than the ready reckoner valuation, the stamp duty will be payable on the higher value as stated in the agreement.
The Maharashtra government issued its first ready reckoner on January 1, 2001.
The stamp duty ready reckoner rates are based on the City Survey (CTS) Number, which takes into account only the location of the property and does not consider specifics of the of the property, like age of the building, whether it has an elevator or not, whether it is a high-rise building, etc. Hence, for determining the exact value on which the stamp duty is payable, various states allow for some deductions from and additions to the ‘stamp duty ready reckoner rates’.
Let us understand the various deductions/additions applicable in the state of Maharashtra for residential flats and offices in a building. If you understand these benefits, you can save quite a lot of money on your stamp duty outgo.
Deduction for age of the building
For old buildings, the stamp duty laws allow for deduction from the rates stated in the ready reckoner. The quantum of depreciation, will be higher for semi-‘pukka’ (permanent) or ‘kachha’ (temporary) structure, as against an RCC structure or any other ‘pukka’ structure. No deduction is available for any structure, which is two years old or less. So, older the building, higher is the quantum of depreciation available from the stamp duty rates.
For example, a permanent structure of more than 60 years, is entitled for depreciation as high as 70 per cent, while a temporary structure of the same age, will have depreciation of 85 per cent. The quantum of depreciation for permanent and temporary structures, for varying ages, is given below.
|Age of the building in years||Depreciation permissible for a permanent structure (in %)||Depreciation permissible for a temporary or semi-permanent structure (in %)|
|Up to two years||Nil||Nil|
|More than two years but up to five years||5||5|
|More than five years but up to 10 years||10||15|
|More than 10 years but up to 20 years||20||25|
|More than 20 years but up to 30 years||30||40|
|More than 30 years but up to 40 years||40||55|
|More than 40 years but up to 50 years||50||70|
|More than 50 years but up to 60 years||60||80|
|More than 60 years||70||85|
Deduction for buildings without elevators
As buildings with elevators have higher market value, the stamp duty rules allow for a deduction, in case the building does not have an elevator. The quantum of deduction, will depend on the floor on which the flat is situated.
No deduction is available for ground and first floor flats. Second floor flats will get a deduction of five per cent, whereas, apartments on the third floor will be entitled to a 10 per cent deduction. The maximum deduction applicable is 20 per cent, which will apply to all the flats above the third floor.
Premium, for homes on higher floors, with building elevators
As builders charge a premium for floor rise, the government also seeks to capitalise on the demand for properties on higher floors. Thus, while giving discounts to buildings without elevators, the government charges higher stamp duty from the flats sold in high-rise buildings with elevators. The premium is linked to the floor and value of the flat and increases for higher floors.
The flats till the fourth floor, are valued at the base ready reckoner rates, whereas, flats between the fifth and 10th floors, are valued higher by five per cent. The stamp duty value goes up by an additional five per cent, for each rise of 10 floors. So, the flats between the 11th and 20th floor, are valued higher by 10 per cent. Likewise, flats from the 21st floor to the 30th floor, are valued higher by 15 per cent. All the flats above the 30th floor, are valued higher by 20 per cent, for stamp duty purposes.
Rebates for shops
As the value of a shop is dependent on whether the same is facing the road or not, the stamp duty rules allow deduction for shops which are not road-facing. Road-facing shops are valued at the base ready reckoner rate but the shops that are not facing the road, are entitled to a discount of 20 per cent, for stamp duty valuation.
Likewise, smaller shops command a premium in the market and therefore, the rules provide for a discount in value, if the area of the shops exceeds a certain size. No deduction is available for shops having an area up to 450 sq metres. For shops having a size between 450 and 700 sq metres, a discount of five per cent is given. Shops with an area between 700 and 900 sq metres are entitled to a 10 per cent rebate. The rebate goes up to 15 per cent, for shops with sizes between 900 and 2,300 sq metres. All shops of over 2,300 sq metres, enjoy a flat rebate of 20 per cent on the base rate. The discounts are applicable, only for shops situated on ground floors.
(The author is a tax and investment expert, with 35 years’ experience)