Taxes and Stamp Duty Rates
Taxes and Stamp Duty Rates
There is a direct link between Registration Act and Stamp Act. Stamp duty needs to be paid on all documents which are registered and the rate varies from state to state. With stamp duty rates of 13 per cent in Delhi, 14.5 per cent in Uttar Pradesh and 12.5 per cent in Haryana, India has perhaps one of the highest levels of stamp duty.
Some states even have double stamp incidence, first on land and then on its development. In contrast the maximum rate levied in most developed markets whether in Singapore or Europe is in the range of 1-2 per cent. Even the National Housing and Habitat Policy, 1998, recommended a stamp duty rate of 2-3 per cent. Most of the methods to avoid registration are basically to avoid payment of high stamp duty.
Fallout of high stamp duty rates is the understatement of the proceeds of a sale. This is also linked to payment of income tax and capital gains tax. When registration has not been effected, a transfer is not deemed to have taken place and hence capital gains tax can be totally avoided.
Thus, the present provisions in various laws and their poor implementation have led to a situation where there is considerable financial loss to the exchequer on account of understatement of sale proceeds, non- registration and consequent non-payment of stamp duty and avoidance of capital gains tax.
Property tax is a levy charged by the municipal authorities for the upkeep of basic civic services in the city.
In India it is the owners of property who are liable for the payment of municipal taxes whereas in countries like the United Kingdom, the occupier is liable.
Generally, the property tax is levied on the basis of reasonable rent at which the property might be let from year to year. The reasonable rent can be actual rent if it is found to be fair and reasonable.
In the case of un-let proper-ties, the rental value is to be estimated on the basis of letting rates in the locality.
In the case of special class of properties like cinema theatres, it is estimated by adopting the accountancy method, under which the rent is a certain percentage of the total average turnover during the year, i.e. actual receipts of the sale of tickets (excluding entertainment duty).
However, some cities follow a different system for the levy of property tax. In Patna, local properties have been categorised into three groups,
(i) Reinforced cement concrete (RCC) buildings;
(ii) Pucca building; and
(iii) Pucca buildings with A.C or C.I. sheet roof.
The rental value per sq.mts. for every building has been fixed according to their status, location, type of construction and user etc. This system has been upheld by the Supreme Court and has been appreciated by international bodies.
In Delhi, property tax of un-let properties is based on rental value, which is arrived at on the basis of capital investment in land and buildings. In the case of rented properties, the rent recovered is taken as the base.
The rental value system has its own disadvantages. There is lot of discretion with the assessing officer. There is no buoyancy of revenues because of the restrictions imposed by the Rent Control Act. As a result, the rateable value of the properties increases only on account of alterations to or extension of the existing properties or on account of construction of new properties. As a result of the Rent Control Act, the income of the municipal corporations has become static. The municipal corporations are, therefore, in favour of an alternative method of levying of property tax which will de-link it from rent.
The Municipal Corporation of Greater Mumbai commissioned the Tata Institute of Social Sciences (TISS) to undertake a study to recommend an alternate system for levy of property tax. The study has recommended a capital value based system of taxation. The advantages of this system are:
(i) It results in revenue buoyancy, i.e. tax revenue can keep pace with inflation and cost of living since capital value can be revised after five years based on the market value of the residential properties given in the Government ready reckoner for stamp duty.
(ii) The system is transparent and simple.
(iii) It is objective and eliminates/reduces the element of discretion.
(iv) It provides equitable assessment among different property owners.
The study has also developed a formula to work out the capital value and amount of tax: Capital Value= Market value (MV) * Carpet area of the property * Weight for type of construction * Weight for age.
Tax= Capital Value * tax rate * weight for user category.
While assigning weights, concessions have been given to buildings like chawls, semi-permanent structures, those constructed prior to 1985 and those falling in the category of tenements having less than 225 square feet carpet area and belonging to the economically weaker sections. Similarly, weights have also been assigned to the user category in a progressive manner. The details of the weights assigned to each category may be seen at Annexure-7.6.1.
The tax rates in the entertainment industry are among the highest in the world. Though some State Governments are waiving entertainment tax on multiplex theatres for periods ranging from three to ten years, on the whole tax on film theatres continues to be high. Lowering of these rates will not only benefit the entertainment industry, which has an annual turnover of Rs. 400 crore, but will also promote real estate development in the form of theatres in cities, towns and even villages.