Stamp duty relief in Bengal budget

Amit Mitra talks to Mamata Banerjee in the Assembly on Friday. Picture by Pradip Sanyal

Sambit Saha, TT, Calcutta, Feb. 10: The cost of owning a property will come down in Bengal as the state government has proposed to reduce stamp duty on agreement for sale and registration fee.

Finance minister Amit Mitra today proposed in the budget to bring down the stamp levy to 2 per cent from the prevalent 6-7 per cent and registration fee to 1 per cent from 1.1 per cent. He also offered a 20 per cent discount on the registration fee in certain cases.

The move is aimed at encouraging compliance as many buyers do not register their property to avoid paying the stamp duty and registration fee. As a result, the state loses out on revenue.

"This is a win-win-win for the consumer, developer and the government. The buyer is encouraged to book a property because the initial cost goes down. This helps in rejuvenating the sagging real estate market which has been hit by demonetisation. If more buyers are encouraged to register their property, the state revenue will go up," Mitra explained to The Telegraph.

The proposal will come into effect once the finance bill is passed in the Assembly later this month.

Usually, a buyer pays around 15 per cent of the property value while booking a flat. But if the buyer wants to register the agreement for sale, he is asked to pay a stamp duty calculated on the entire value of the property. This had been preventing many from registering the document.

When a buyer books a flat in an under-construction property with a home loan, the mortgage lenders insist on the registration of the sale agreement as no unregistered document is admissible in court under the Evidence Act.

But while the home loan companies insist on registration, they usually do not fund the cost of paying the stamp duty that the buyer has to arrange in addition to the down payment.

According to the proposal tabled today, a buyer will need to pay only 2 per cent of the IGR value of the property (value decided by the inspector-general of registrar) while booking a flat and pay the rest if the deed of conveyance is registered within four years.

Moreover, the balance stamp duty will be applicable only at the IGR value of booking and not when the deed of conveyance is being registered four years later, when the IGR value is usually higher.

Sushil Mohta, the managing director of Merlin Projects and former president of Credai, welcomed the move.

"This was a suggestion from our end. We are happy that the government has accepted it," he said.

Mohta said the buyers were wary of registering the agreement for sale as they did not want to pay the full stamp duty for a property that is not ready.

"They used to think what if the developer fails to deliver the flat. In that case, the entire stamp duty will be gone. Moreover, the investors were reluctant to pay full stamp duty thinking they would not be able to recover it from the second sale," Mohta added.

Taxes on land, which include stamp duty and registration, are a huge source of income for the Mamata Banerjee government and the increase in compliance would enhance the state coffers.

The Bengal government earned Rs 2579.28 crore from taxes on land in 2016-17, up by 4.76 per cent from Rs 2456.26 crore in the year before. The state has set a steep target of Rs 2759.83 crore for the next fiscal.

Calcutta-based chambers of commerce also welcomed the budget proposal.

"The finance minister deserves accolades for continuing with the policy of the government to provide housing for all and providing necessary relief to the real estate sector through the reduction in stamp duty and special incentives to those who register their property early. These would sufficiently boost the sentiments of the buyers and the real estate sector in turn," said Rakesh Shah, president of the Bharat Chamber of Commerce.

The reduction of registration fee by 20 per cent and bringing down the stamp duty on agreement of sale to 2 per cent will encourage early registration, said a member of the Merchants' Chamber of Commerce and Industry.