Calcutta, Jan. 24: The Mamata Banerjee government has lowered the threshold that decides property transaction fees in Calcutta and surrounding areas, reversing a 21-year-old upward trend.
The cuts will not only help buyers and some sellers save more but also reflect market trends and remove a disincentive for property deals in a sluggish phase.
Real estate players, who had unsuccessfully appealed to the Centre to change a related rule, said this was the first time the state government had brought down circle rates since they were introduced in 1993.
Circle rates are prescribed prices at which stamp duty and registration fee will be levied irrespective of what sale agreements show. The rates were introduced to ensure that the government does not lose out on revenue even if low prices are shown in the documents. The slash is as steep as 33 per cent in certain areas like Park Street and 10.7 per cent for properties along Ballygunge Circular Road. (See chart)
Over the years, the circle rates kept creeping up, sometimes several times in a year, as the state government tried to milk more revenue.
In Bengal, property worth over Rs 25 lakh attracts a stamp duty of 7 per cent and registration fee of 1.1 per cent. The stamp duty comes down to 6 per cent for properties worth less than Rs 25 lakh.
Even though circle rates tend to be higher than the transaction value, buyers did not mind paying a little extra. But the Union budget of 2013 changed income tax rules to fight black money and tax evasion, affecting property deals.
According to the new provision, if the circle rate is more than the agreement price, the difference will be added to the income of the seller when income tax is tabulated. So, if a seller is an individual, he has to reinvest the full amount based on the circle rate, not just what is shown on the document, to get tax breaks.
The buyer has to pay tax on the difference between the transaction value and circle rate value, if the latter is higher. The difference between the two values will be taken as deemed income if the circle rate is higher. The buyer has to pay income tax at the applicable rate.
The cuts in Bengal will ensure income tax relief for the buyer, over and above the obvious reduction of stamp duty and registration fee.
For instance, if you buy a 1,000sqft flat on Park Street at Rs 12,000 per sqft, the value will come to Rs 1.2 crore. Under the old circle rate of Rs 18,000 per sqft, the value would have been taken as Rs 1.8 crore. The income tax department would then have considered the difference between the two values (Rs 60 lakh) as your deemed income. If you fall in the 30 per cent tax rate bracket, you would have had to pay Rs 18 lakh as income tax.
The circle rate has now actually come down to Rs 12,000 per sqft in Park Street. So, if you buy property there now, you stand to save on income tax.
“We made several representations to the Union finance ministry for revision in income tax provisions. But nothing came of it. Simultaneously, we requested the state government here for moderation in circle rates. We are very happy that it has happened,” said Sushil Mohta, the vice-president of Credai Bengal, a body of real estate developers.
Analysts described the cut as a bold move by the state government, given that stamp duty and registration fees are among the top five revenue earners.
Finance department officials are hoping that the number of deals would increase and help meet revenue targets. “We hope more people will now be interested to register flats, which will mean more revenue,” said an official.
In Sector V, a new category called “office space” has been introduced, softening circle rates to Rs 5,800 a square foot from Rs 7,000 a square foot.
Mohta, who has developed an IT park there, said transaction would pick up. “Many people were waiting in the wings. They will now come forward,” said.
Harsh Patodia, the Credai president, said the real estate body would make further representation to the finance department to restate circle rates for retail and office space.