#Budget2017: “State Govts Must Slash Stamp Duty By At Least 50%”
In the aftermath of demonetisation, the common man is expecting some tax sops because the salaried class rallied behind the Centre in its clean up act. As far as the property market is concerned, it is anticipating some tax reforms in the form of sops or subsidies because the sector took the biggest hit in the government's drive to set the house in order.
There are murmurs from across the trade and business industry to trim down on certain types of taxes, including the stamp duty on property. As land is a state subject, even the apex trade association of the country Assocham has suggested the Centre to direct the states to "drastically" cut stamp duty on residential and commercial property deals to dissuade people from undervaluing purchases.
Why cash is the king
Owing to higher stamp duty, cash forms 30-40 per cent of real estate transactions. To avoid paying higher stamp duty (which varies between 6 per and 7 per cent) on the property, the asset is usually undervalued. For instance, if a seller buys a property between Rs 1 and Rs 1.5 crore, he ends up paying stamp duty and lawyer charges to the tune of Rs 10 lakh.
As far as the seller is concerned, more price of the property means bigger profit which translates into heftier capital gains tax. Ludhiana-based real estate broker Virendra Narang of Narang Properties, says, “The government takes away so much in the form of taxes that a common man is forced to fudge with the numbers. Why would anyone want to pay more when there is an option to pay less?”
In a nutshell, it is a big motivation for both the buyer and the seller to show the undervalued price of the property and save on taxes.
White turns black
Strangely, there are umpteen number of cases where the salaried class, which dutifully pays all its taxes and is living a clean life, is forced to withdraw cash from their legitimate bank accounts for such transactions. Assocham Secretary General D S Rawat told an English daily recently, "The system forces you to convert white into black. Nobody likes it, but the state governments must come forward and slash it by at least 50 per cent and the move would result in increase in their revenue rather than reducing it."
Why stamp duty should be trimmed down?
Lesser stamp duty would revive the demand in the highly suppressed sector which has been reeling under immense pressure in the aftermath of demonetisation.
Is there a chance of stamp duty cut?
After demonetisation, property dealings may be eased with a possible rise in on-the-book property deals. The government purse is bursting at it seams and there is no harm in putting a balm on the bruises of the common man and win back his confidence.
"We have to also go back and begin to think much more seriously about a whole set of tax reforms, which would bring both simplification and precision," NITI Aayog Vice-Chairman Arvind Panagariya told a private news channel.
The reduction in stamp duty will also give a leg-up to Prime Minister Narendra Modi's dream of Housing for All by 2022.