Maharashtra govt plans realty sops, may cut stamp duty

The commercial real estate sector in Maharashtra is up for a double bonus with the state government considering proposals to reduce stamp duty rates to sub-five per cent levels across-the-board as well as declaring an amnesty scheme to allow truant commercial developers to legalise unregistered property.

The amnesty scheme alone is estimated to earn Rs 100 crore for the state government. Confirming the government consideration the proposals, principal secretary KS Vatsa said: "There is indeed a proposal to consider a rationalisation of the stamp duty structure in order to encourage investments in the commercial realty sector. At the moment, though, it would be premature to comment on the level of reduction that would be sanctioned by the state government."

However, another senior government official confirmed that the intention of the current proposal was to bring down the non-housing realty sector on par with it by scaling down the stamp duty on various categories in this segment to five per cent and below.

"We anticipate a slight revenue shortfall on account of this reduction in stamp duty rates in the first year. However, with the move being aimed at giving a fillip to the number of commercial property transactions, the situation is expected to increase revenues on this account subsequently," he added.

The official said residential transactions form around 70 per cent of the revenue collections of the state government from stamp duty in any case, and the expected reduction in the commercial sector would not result in any major revenue distortions.

A mechanism to correct any possibility of the move resulting in a revenue loss to the state government is also in place and the new lower duty rates may be rolled back if revenues are sharply impacted.

Currently, commercial realty transactions attract a host of different stamp duty rates in different regions like 10 per cent for hill stations in Maharashtra, while regions administered by the municipal corporations of Mumbai, Pune and Thane attract 10 per cent.

Similarly, municipal council administered regions in the state (eight per cent stamp duty), 'A' classification regions or developed regions (six per cent) and below 'A' classification or less developed regions (below four per cent).

The proposal has been pursued with the state government by the Maharashtra Chamber of Housing Industry (MCHI).

Sunil Mantri, secretary, MCHI, said: "A government move to reduce the stamp duty rates will work as a booster to the realty sector and may not result in a reduction in revenues as there is a tendency for transactions increase when the duties are reduced."

Apart from MCHI, the national institute for public finance and policy has also recommended a single duty rate. Even world over a stamp duty rate of two-five per cent is levied.

Mantri said: "The amnesty scheme alone will provide an additional Rs 300 crore to the state government. The reduced stamp duty rates would encourage commercial realty developers to go in for a one-time settlement and bring increased revenues for Maharashtra."

Under current laws, a penalty of two per cent per month is levied upon those commercial properties that have not registered themselves.

This translates into a 24 pre cent annual penalty on the 10 per cent stamp duty amount with the total levy and penalty figure doubling in four years time.

Those who are yet to register their documents (of commercial property) have therefore been adopting a wait-and-watch attitude anticipating an amnesty scheme to reduce their tax burden, Mantri added.

Even under the proposed reduced stamp duty regime, the state government will continue with those exemptions on duty that are accorded to certain protected categories.

The concessional rate applicable to them (way below the proposed five per cent rate being recommended for commercial realty) will continue even under a new regime.

For instance development agreements incur a stamp duty rate of one per cent, rural areas incur a three plus 1.4 per cent rate (the latter accruing to the local self body), villages (two per cent and residential transactions up to 10 per cent (three to four per cent). These concessions will continue.