Buying a house? Soon, stamp duty and registration fees may fall to 5-6%

Planning to build your dream home? You may want to hold on for some time, as the housing board is trying to convince state governments to cut stamp duties and registration fees. If the move is successful, you will definitely save some bucks. In mid-April, Prime Minister Narendra Modi had said that every Indian should have a house by 2022, on the 75th anniversary of the country’s Independence.

“We have a dream for 2022. The poorest of poor should have a house of his own", Modi said.

In lieu of "Housing for all vision", Sriram Kalyanaraman, MD of the National Housing Bank (NHB) told the Economics Times, "We have engaged with some state governments on how they could reduce stamp duty for affordable housing".

 “If they accept it, stamp duties and registration charges should come down significantly.Such a reduction will bring down their margin money and provide relief to many Indians, for whom owning a ‘home’ is still an aspiration.” he said.

The NHB is engaged in discussions with states such as Maharashtra, Gujarat, Andhra Pradesh, Tamil Nadu, and Jharkhand.

What does this mean to house buyers?

If the National Housing Bank succeeds, stamp duties and registration fees may decline to 5-6% of the basic cost of an apartment or a property, compared with the existing rate that is as high as 12.5% in some states.

For instance, a Rs 20-lakh property costs buyers Rs 2,50,000 extra due to 12.5 per cent extra charge on account of registration and stamp duty charge.

The outgo may fall to as low as Rs 1,00,000 if the revised fees are pegged at 5%. This will help Indians struggling to get on to the property ladder.

Waiver of Stamp duty on affordable houses

Earlier this year, Modi government had said that soon stamp duty on affordable houses could be waived. 

Union Minister Venkaiah Naidu said, "We are addressing the need to rationalise stamp duty, and are asking for waiver of stamp duty for affordable housing".

He also asserted that GST will not increase prices of real estate, especially of affordable housing.

"The proposed implementation of Goods & Services Tax will not increase prices of real estate, especially of affordable housing. We have already exempted affordable housing from service tax, and my ministry is addressing the need to continue this exemption under GST."

Who fixes the stamp duty charge

Being a state subject, stamp duty is fixed by the state government and varies between 4 per cent to 8 per cent. The Urban development and housing ministry has written to the state governments to exempt affordable houses from stamp duty.

Slow progress on the affordable housing scheme

However, despite all efforts, there has been slow progress on the affordable housing scheme in some states because of unavailability of land.

According to Huffpost, Modi government has asked government departments to scout for vacant land in developed government colonies that will make up a "land bank" that states can tap into for new housing.

States such as Kerala, Uttar Pradesh, Uttarakhand and Delhi have found it difficult to find land for housing projects.

The government has already given its nod to the construction of 16.42 lakh affordable houses so far.

In case stamp duty and registration charges are reduced, the government would need alternatives to make up for the revenue loss. For that, NHB has engaged with IIM Bangalore to develop a model that can project to states how housing will generate additional revenue, other than stamp duty and registration.

"Alternative sources of revenue from the housing sector need to be looked at," said Soumya Kanti Ghosh, the chief economic adviser at the State Bank of India. "To compensate the proposed reductions (stamp duty and registration charges), state governments could explore imposing value-added tax (VAT) on luxury items, and on goods such as liquor. Such reductions will not only give shelters millions but also create jobs."