The
Karnataka Government has published the revised guidance values of lands for
registration. These new guidance values will be effective from 2nd August 2004. The government expects to earn
about 300 crores of additional income from the revised guidance Values.
The
department of stamps and registration is one of the top revenue earners to the
state. People who expend their life savings on property wants to have legally
perfect documents. They do not mind paying reasonable stamp duty and
registration charges. If the Stamp duty and registration charges are less the
number of registrations will increase, thus improving the revenue this can be
gauged, from the revenue of the department for the year 2003-04, which frog
leaped from Rs. 711.12 crores in 2002-03 to 855.98 crores in 13 sub registrar
offices at Bangalore. Because the Stamp duty, which was 12.5% and registration
charges which was 2% during 2002-03 were lowered to 8.96% and 1% respectively.
Stamp duty and Registration charges are the fees the government charges for
protecting the interest of public. It has to be reasonable. It cannot be viewed
just as a source of income to the state. It should be affordable and in
relation to what government does in return.
Burden of Stamp Duty:
If
the charges are not affordable for a common man, he would explore other modes
of operation like general power of attorney, agreement, affidavit, memorandum,
understanding, share certificates, unregistered partnership deed etc. There are
instances where the concessions extended to gift of the property to close
relatives are misused by describing the purchaser as close relative though no
way related. Though all these methods exposes the purchaser to grave risks, he
adopts such measures out of necessity unable to pay the high stamp duty and
registration charges, having paid a fortune to purchase the property. In fact
government owes a duty to the public in making housing affordable, as it is a
basic necessity after food and clothing. It is more of a social cause than an
issue of revenue to the Government.
Market Value Committee:
The
government has last revised the guidance value during July 2002. The rates then
fixed were also subject of much discussion. The government had proposed to
revise the guidelines during August 2003, and committee was appointed. The
committee for the first time had non-official members represented by the
various sections of real estate like Builder’s Association, apartment owners
association, developers association. It is learnt that there was overlapping of
areas of rural Bangalore
and urban conglomeration. The revised rates recommended by the committee has
considered the recession and subsequent boom in property rates, and also FAR
used for apartments. In case of overlapping rural and urban areas, the median
rates are prescribed.
Flats:
The
revised guidance values have prescribed separate values for the apartments.
There are based on nature of the land like BDA, Housing Co-operative society,
Converted, CMC, Gramathana. Further each of these categories is categorized
based on their nature of the flooring, Mosaic/Ceramic and marble, granite,
vitrified. The previous guidance values had no separate values for flats. The
undivided share of the land was valued as per the land value and the building
was valued as per the specifications applicable to general buildings.
The
immediate impact of revised guidance values are on stamp duty and registration
charges. If the value of property is more than the guidance value, the stampduty and registration charges have to be paid on the value of the property as
mentioned in the document. In case the value of the property is less than the
guidance value the stamp duty and registration charges are collected as per
guidance value. As the guidance values are increased the stamp duty and
registration charges also have increased. We shall examine some examples. The
guidance value per sft of land in HSR layout (sector 4,6) previously was
Rs.300/-, which is raised to Rs. 700/- per sft. Thus the land measuring 1200
sft attracts higher duties as follows.
Guidance
value Previous Present
Per
Sq. Ft (Residential) Rs. 300/- Rs. 700/-
Price
of 1200 sft land Rs. 3, 60,000/- Rs.
8,40,000/-
Stamp
duty at 9.04% Rs. 32,544/- Rs.
75,936/-
Registration
Charges Rs. 3,600 Rs. 8,400/-
At
1% (excluding
cess
and scanning
charges)
_________________________________________________________________
Total Rs.
36,144/- Rs.84,336/-
________________________________________________________________
Increase Rs.
48,192/-
2. Kumbalgod
Guidance
values Rs. 50 Rs. 300
Price
1200 sft Land Rs.
60,000/- Rs. 3,60,000
Stamp
duty at 9.04% Rs. 5,424/- Rs. 32,544/-
Registration
charges
at 1%
(excluding cess
and
scanning charges) Rs.
600/- Rs.
3,600/-
_____________________________________________________________________
Total Rs.
6,024/- Rs.36,144/-
____________________________________________________________________
Increase Rs. 30,120/-
Car
parking
The
guidance value for car parking has also increased. It is Rs. 35,000/- for
uncovered and Rs. 50,000/- for covered, irrespective of the area. Previously it
was upto Rs. 25,000/- in city outskirts, like Bangalore South, K R Puram,
Bangalore North, Kengeri, Sub Registrar office area, and it was upto a maximum
of Rs. 70,000/- in city Sub registrar areas like Basavanagudi, Jayanagar,
Rajajinagar, Srirampuram, Shivaji Nagar. The revised guidance values for car parking
has no scientific base as the land values in city outskirts is less. Further
car parking is part of super built up area, which is saleable area, for which
consideration is paid, and car parking cannot be charged separate.
Fair and Unfair:
Revised
guidance values are a mix of fair and unfair rates, where the high network
individuals are benefited, and middle class, lower middle class, poor have to
bear the burden. Take example of Brigade
Road , where the guidance values are revised to Rs.
6,000/- per sft from Rs. 5,000/- per sft. Though the lands along Brigade Road have
fair values, the lands at the rear side of the same road, or lands near
drainage or lands, which do not have proper access or uneven land has less
market value, but the stamp duty and registration charges are as per the
guidance value.
The
correct method would have been to consider both the highest and lowest market
values and to strike fine balance between them. According to information
available property adjacent to National highway are raised by 50% that of
adjacent to state highways by 25%, corner sites is to be increased by 10% and
apartment, which are used for commercial purpose by 20% more than residential
apartments. The value of industrial sites is notified industrial areas is at par
with residential sites, but in other areas is lowered to 50% of residential
sites. The value of commercial sites in layout developed by BDA, BMP, and
Housing Co-operative societies is increased, by 40% and by 30%, which fall in
gram panchayats and City Municipal Councils.
Increase of Stamp Duty:
It
is a trend in property sector, that market rates increase when guidance value
is hiked. The guidance value will then increase to be at par with market value.
This is vicious circle. Further, the government adopts two ways to increase the
stamp duty and registration charges one is by increasing the guidance value and
another is by increasing the stamp duty and registration charges. This year
government has increased the guidance value, next year it may increase the
stamp duty and registration charges on the pretext of being long overdue. The
duties in Karnataka are already higher when compared to other states. The
abnormal and non-reasonable duties will only make the people to seek other
routes, and government may loose much revenue.
BMP
has proposed capital based property tax, based on guidance value, and the
increase in guidance value will increase the property tax. This results in
increase of rents.
Experts’ Opinion:
Sri.
Ramani Sastri, President KOAPA, opines that the revised guidance values are
fair in general though there is certain discrepancies here and there like
revised guidance value of Rs. 6,000/- per sft in Brigade Road where actually no land is
available in Brigade Road .
He is of the opinion that while revising the guidance value, the government
should also take into consideration infrastructure available. Sri. Ramani
Sastri further added that the government increases the guidance value when
market value goes up, but will not reduce the same when the market rates crash.
Mr.
Irshad Ahmed, Secretary Bangalore Realtors Association (India ) felt
that the revised guidance values will have no impact on real estate but will be
a additional burden on common man.
Impact on Capital Gains:
The tax on the profit earned on transfer of
capital asset that is immovable property has to be paid by the seller. If the
value of the property disclosed in the transfer document is higher than the
guidance value, the tax is payable on the basis of value disclosed in the
document. In case the value disclosed in the document is less than the guidance
value, the value of the property will be deemed as that of guidance value and
attracts tax accordingly. In some of the cases the market value of the property
is less than the guidance value, and the seller incurs loss, the guidance value
will have the priority and attracts capital gains tax, and the seller has to
pay the tax.
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