Stamp Duty Rate changes in 2014 - Maharashtra

Maharashtra Government, on Tuesday, announced the revised Ready Reckoner Rates which will further see a tremendous rise in the property prices. The Ready Recknor rate is used to compute the minimum registration and Stamp Duty Charges paid while registering a property.

A lavish apartment which has a ceiling higher than 9 ft. with modern facilities like internal helipads and Swimming pools and helipads will need to pay upto 50% more stamp duty than a normal regular apartment. Also, flats in luxury properties that surpass 4,000 square metre, or one acre of plot with a common Clubhouse, Swimming Pool and gymnasium, will have to pay an additional 15%. This figure is over and above the up to 20% increase in the ready reckoner (RR) rates. These rates will be brought in effect from January 2014.

For Example a flat in Worli, Mumbai that costed Rs. 10 Cr. in 2013, a buyer had to pay Rs. 50 Lakh as Stamp Duty. Whereas, the same flat will cost Rs. 12 Cr. (According to the 20% hike in RR Rate) a buyer had to pay Rs. 60 Lakh as Stamp Duty. If the complex has swimming pool and gymnasium the flat will cost Rs. 13.80 Cr. & the stamp duty that will be due is Rs. 69 Lakh.

According to the real estate players , the Government has smartly doubled the RR rates for lavish residential properties and bungalows.

For example, in 2014 the RR rate for a residential property in Worli may have increased to, say, Rs 25,000 per square foot post the 20% hike. So, for a luxury building, the property value will be hiked by an additional of 15% over and above the average 20%. Hence, the RR rate will set up to Rs 28,750 per sq ft. So, now, the stamp duty will have to be paid on Rs 28,750 per sq ft.

The new RR rates will also have a influence on the redevelopment projects of housing societies. In Mumbai, the construction cost of RCC buildings has, at present, increased by 32% from Rs. 19,600 per Sq. metre in 2013 to Rs. 25,500 a square metre in 2014. It has risen by 36% in the suburbs from Rs. 17,800 per Sq. metre in 2013 to Rs. 24,000 a square metre in 2014.

Developers will have to pay stamp duty on the refundable deposit given to tenants for redeveloping a plot. If the property value falls below the RR rate, the stamp duty will be calculated as per the land plus construction cost method.

Since 2003, this has been the 1st time that the RR rates have increased for high-value residential projects. This increase in the RR Rates is limited to luxury projects, which are very few. As the developer pays all the charges, the redevelopment schemes will not be affected as the hike in construction cost and stamp duty is not much.

If the renegotiation fails, the developer will then, try to recover his cost by hiking property rates in the free-sale component.

Flat sales have dropped significantly in the past couple of years. Hence, the new hike in the RR Rates with further affect the real estate market in Mumbai.

The increase in RR rates has various effects on the total tax that a property buyer has to pay:
1) The 5% stamp duty
2) Registration fee of 1%
3) Service tax of 3%
4) Local body tax of 1%
5) MVAT of 1%.

Hence, a buyer will now have to pay a total of 11% as tax to the government. For example, for a flat of Rs. 10,000 per sq ft, the buyer will have to pay Rs 11,009 to the government, which is going to be body blow to the already limping real estate fraternity.

It is obviously a no-brainer that this extra burden of stamp duty levied by the relevant authorities will set the cat amongst the pigeons as far as the property developers are concerned.