UP has also approved an increase in stamp duty – from 5% to 7% – though it has delayed its implementation with an eye on the assembly poll next year.
Haryana’s move to slash circle rates in Gurgaon has put the onus on Uttar Pradesh to take a similar correctional step in Noida, the other city where the wind has been knocked out of the realty market.
So far, the UP government has given no indication it is considering a circle rate cut; on the contrary, after raising it last year, it is reportedly planning on doing so again. UP has also approved an increase in stamp duty – from 5% to 7% – though it has delayed its implementation with an eye on the assembly poll next year. Both these levies would substantially increase the burden on homebuyers, when they come into force.
Circle rate is the minimum value at which a plot, house, apartment or commercial property is sold, and determines both stamp duty a buyer has to pay and capital gains tax a seller is charged. Getamber Anand, president of real estate body Credai, said the UP government should reduce circle rates to increase transactions in the market and any move to increase stamp duty would be regressive, as it would only stifle transactions, which are already sluggish because of the slowdown.
High circle rates are badly affecting first-time buyers. Most projects in Noida under construction and up for possession in the next one year were sold at Rs 2,800-3,500 per sq ft between 2010 and 2012. Thousands of apartments were launched in sectors 74 to 79 and Sector 137 during this period.
But the circle rate in sectors 74 to 79 is Rs 4,275 per sq ft. The value of a 1,500 sq ft house at Rs 3,200 per sq ft in 2011 would have been Rs 48 lakh. But if a person who bought this flat were to get possession today, the government will take its value to be Rs 64,12,500 (based on the existing circle rate) to calculate stamp duty. On covered car parking, too, UP has fixed a minimum value of Rs 3 lakh to levy stamp duty. This will force a buyer to pay more as stamp duty.
Not this only, both buyer and seller may get phone calls from the income tax department to pay income tax on the difference of the actual cost at which the customer bought the house and the government valuation of it – in this case, on an amount of Rs 16,12,500. The I-T department not only considers the amount as income for the seller, but also treats it as undisclosed income of the buyer too.
In the case of the seller, tax will be levied at 20% as capital gains while the buyer will be penalised at the rate of 30%, as this will be treated as his undisclosed income. “In certain situations, this could become a contentious issue where fair market value is lower than the value adopted by stamp valuation authority. In such cases, taxpayers can put forward their case to tax authorities along with necessary documentation to substantiate their position,” Vikas Vasal, partner (tax) at KPMG, India, said.
Naturally, as Anand points out, a notice from the I-T department would send shudders down anybody’s spine, marking this rate mismatch the biggest dampener for any transaction in the sector and prolonging the slowdown.
Deepak Kapoor, director of Gulshan Homz and president of Credai (western UP), said a first-time buyer has to also pay a service tax of 4.06% on the sale price. The tax department marks up 27% of sale value of a house as being created through services rendered during the course of construction. Therefore, they charge 15% service tax on 27% of the value of the house, prompting tax experts to argue that the government should not levy stamp duty on the services part of a property.
Even those who buy in the secondary market-that is from a person who has already taken possession and got the property registered on his name-pay tax on more than the transaction value of the property. There are a number of projects in Sectors 74-79, 119, 120, 122, 137, 143 among others that are quoting at less than circle rates. In many cases, the difference in value through this on a 1,500 sq ft property comes to around Rs 10 lakh.