Authors: M. Hossain, Founder, LLC AND Reshmi Hossain, IP & Commercial Law Specialist, LLC
The Covid19 pandemic has had a colossal effect on many industries none more so than those involved with brick and mortar. The real estate sector has seen a steady decline in residential and commercial property sales over most of 2020 and into the half of 2021. With lockdowns followed by first and second waves and the constant hurdles affronting the sector, construction companies have found it difficult to invest in new projects or continue with their existing ones. Finished projects or projects with phase wise sales expecting foreseeable revenue have seen sales stalled as buyers have either been apprehensive of the market or have seen a plunge in their purchasing ability due to the pandemic and resultant loss of incomes. All this has had a direct impact on the State Govt. revenue related to stamp duties and registrations as alarmingly fewer conveyances have taken place.
Amidst this crisis in the real estate sector, the State Government in West Bengal proposed relief to the buyers by reducing the rate of stamp duty by 2% for registration of deeds affecting sale/lease of land/house/flat etc. along with a reduction of the circle rate /market value by 10% from the prevalent market rate. Vide Order dated 9th July 2021 issued by the Directorate of Registration and Stamp Revenue, the Inspector General of Registration and Commissioner of Stamp Revenue, WB noted that the Government’s Finance Department had declared a reduction of 10% in the circle rate/IGR rate of all immoveable properties with the State, however for a temporary period. It was also noted that the Government had further declared a rebate for a temporary period of 2% on the existing stamp duty chargeable under Article 23 (Conveyance) of Schedule IA of the Indian Stamp Act, 1899 (applicable to West Bengal) in relation to all transactions for immoveable properties except amalgamation of contiguous land.
The provision for filling up e-requisition forms for new registrations has become operational from July on the website of the Directorate of Registration and Stamp Revenue. Once the forms are filled, the new queries are showing that the reductions have indeed been implemented i.e., 10% in market value/circle rate and 2% in Stamp Duty. This reduction is expected to benefit all parties to the transaction in real estate deals wherein the transferees /prospective buyers will save on stamp duty and registration obligations thereby making the sales more lucrative throughout this temporary period. This is turn should make it easier for transferors to find buyers hoping the reductions would incentivise the sales. It is expected that this temporary relief shall provide the necessary encouragement to remobilise the real estate sector.
Our Law Chambers have filled up e-requisition for sale of a flat for a client and seen that a residential flat with market value @ INR 1,00,00,000 before 8th July 2021 has now valued at 10% less i.e., INR 90,00,000 post the reduction.
The applicable Stamp Duty on such transactions before 8th July was 6% i.e., INR 6,00,000 and Registration Fee @1% i.e., INR 1,00,000. However, post 2% reduction in Stamp Duty, the applicable SD has now become 4% effective after 8th July 2021.
Therefore, the client purchasing a residential flat prior to 8th July 2021 (market value INR 1,00,00,000) would have to pay a stamp duty & registration fee at INR 6,00,000 + INR 1,00,000 = INR 7,00,000.
Post reduction, the payable SD & Reg Fee for the same flat (now market value INR 90,00,000) with 2% reduced stamp duty is INR 3,60,000 + INR 90,000 = INR 4,50,000.
Therefore, as illustrated, the client now saves INR 7,00,000 – INR 4,50,000 = INR 2,50,000 just as a result of the reductions implemented by the State Government.
It is imperative to note that the reduction in circle rate/market value and rate of stamp duty payable on transactions in respect of immovable properties situated in West Bengal, is only a temporary measure to counter the slump in real estate sector and only operative for a stipulated time period until 30th October 2021.
Therefore, the benefit of this saving will be available only to those registrants who execute and register their instruments within the stipulated period between 9 July 2021 and 30 October 2021. It is in the interests of the parties to pursue their registrations in an accelerated manner as the temporary relief should spike the monthly registration numbers as many will try to take early advantage of this relief provided by the State Govt. and the relief as of now does not appear to have any foreseeable extensions beyond the indicated schedule.
The current reductions in Stamp Duty and Market Value will also have benefits in other spheres for the parties i.e., capital gains and income tax reliefs for the transferors and transferee respectively.
In pursuance of the Income Tax Act, 1961, computation of capital gains for income arising out of a transfer of property is done on the basis of the property value adopted by the valuation authority in respect of that transfer. Therefore, in transactions where the consideration is lesser than the fair market value, transferors will benefit when being assessed for capital gains owing to the reduced market value by 10%.
As for the income tax relief for buyers, as per law when a buyer purchases any immovable property for a consideration which is lower than the existing circle rate, the difference between the amounts is computed as the income of the person/buyer. Thus, this diminution of 10% in the market value would end up as a reduced deemed income for the buyer which in turn would obviously lead to a lesser tax liability.
The government is expectant of an ascendance in the overall collection of revenues of stamp duty during the temporary period during which this relief subsists. The Government’s initiative in West Bengal will elevate the registration numbers in the entire State. It will not only provide temporary relief to transferors through capital gains relief and to transferees through reduced liabilities for stamp duty and income tax but will also have a rolling effect on the entire real estate sector. The funds generated from new sales accruing to the real estate and construction companies will in turn encourage the latter to further infuse fresh investments thereby mobilising the entire sector including the various infrastructure companies.
Founder & Group Head - India Practice, Lincoln Legal Chambers
BA Law (Joint Hons.), PG Cert. (Merit) International IP Laws (UK)
PG Diploma (Merit) Commercial & Corporate Laws (UK)
LLM (Merit) Computer & Communications Law (University of London)
IP & Commercial Law Specialist - India Practice, Lincoln Legal Chambers
BA LLB (Hons.), LLM (Distinction), City, University of London
Awarded City Law School Prize in International IP Law & Policy