Selling made easy

POLICY IMPACT

With the Maharashtra Budget deciding to ease the norms for property sale, it is likely that the supply will improve.

I n a move that could help property investors to exit the market in Mumbai, the Maharashtra State Budget has recently declared that now you need not hold the property for "at least" three years to take advantage of the concession on stamp duties.

Thatis, in case a property was sold before three years, the buyer would have to pay a stamp duty, based on the entire sale agreement price.

However, by reducing the time frame, now a buyer will get the concessional advantage, even if the propert is just one year old. Clearly, it was believed that long-term speculation in the property market should not be encouraged.

Also, the entry of "any person" from "investor" is rather important because to sell a property, you had to run around for a certificate to establish that you were an investor in property (defined as someone who buys property, but not self use) and not a genuine home buyer.

But with property becoming an important part of asset allocation, there are a large number of people who have purchased second and third houses. Therefore the clause has been amended to "any person" from investor in the recent budget.

Let us take an example to explain the new guidelines.

If you had bought a property in the year 2003 for Rs 25 lakh and sold it before 2006 for say, Rs 40 lakh, the stamp duty was payable on the entire sale price.

This, despite the fact that you had paid stamp duty on purchase and the profit was Rs 15 lakh. But if you held on to the property for three years, the stamp duty was imposed only on Rs 15 lakh.

Under the current amendment, The stamp duty charged will only be on the incremental price rise, even if you sell the property within one year.

In our example , if the price has gone up to Rs 30 lakh, the stamp duty will be paid only on Rs 5 lakh. By doing so, the government is also helping investors in property to exit and that could add to the supply in the market.

Further, there are also issues of long-term and short-term capital gains tax. However, the gains and losses also depend on the market conditions, whether you are in a booming real estate market or a depressed economy. The amendment, meanwhile, has many other implications for the resident of the state.

Officials said that the main reason for reducing the time period for availing concession on stamp duty is to reduce the time period of speculation.

"Earlier, a holding period of three years to avail relaxation in stamp duty payment used to be an incentive for a person to hold the property for that time period. By bringing down the period to one year, the property owners can now exit the property faster, which in turn, will curb long-term speculation on real estate prices," said an official.

Given that the overall scenario this year does not look very optimistic because of the apprehension of a severe recession in the United States. Even the Indian stock markets are suffering. In such a scenario, a move like this would help the investor to exit earlier from his investment in property and save on stamp duty payment.

NEW GUIDELINE

Buying cost: Rs 20 lakh

Sale price within one year: Rs 25 lakh

Difference: Rs 5 lakh

Stamp duty for buyer: 5 per cent of Rs 5 lakh = Rs 25,000

Profit for seller = Rs 5 lakh. Taxes will be according to the income bracket