Monday 10 February 2014

An Article About "Stamp Duty Valuation"

Stamp Duty Valuation

The terminology 'under-valuation' is frequently used in matters of transfer of property, which has a direct bearing on payment of  stamp duty and registration charges payable to Government. Before turning upon the subject 'under-valuation', it is necessary to understand the constitutional provisions relating to stamp duty. Articles 246, 265, 268, 269(1) of the Constitution of India  are relevant  here.  Article 246 refers to the powers of Parliament  and State Legislature to make laws.  The Constitution of India  has union list,state list, and concurrent list. The  Parliament has powers to make laws in respect of matters mentioned in the  union list and state  legislatures  have powers to make laws in respect of matters mentioned in the state list and both have powers to make laws in respects of matters mentioned inthe  concurrent list.

For day-to-day functioning and to meet administrative expenses and also for under-taking develop-mental works, every Government whether in the Central or States requires revenue which are earned from different sources.  Levy of tax is one such source of income to the Government. Article 265 makes it very clear that no tax shall be levied or collected except under an authority of law.

Stamp duty registration charges are the  major  sources  of  revenue  to the State Governments. In Karnataka, the department of registration and stamp duty is ranked among the top five revenue earning departments of the State.

The stamp duty and registration charges are payable on ad-volerem   basis, that is based on the value of property. No maximum limit is prescribed in respect of stamp duty and registration charges payable on transfer of property. The stamp duty and registration charges go up with the increase in the value of sale consideration paid for  the property i.e. higher the sale consideration, the greater the stamp duty and registration charges. These charges are normally borne  by the purchaser of the property unless there is a contract between the parties  to the contrary effect. Apart from payment of sale consideration, stamp duty and registration charges, the purchaser has to incur expenditure to get revenue records mutated in his/her name and for transfer of power and water connections to his / her name. All these expenses put together would be around 12% of sale consideration.

To save some money from out of this expenditure, parties to a sale transaction by mutual consent mention the value of the property in the conveyance deed  at a much lower  figure  than its actual market value and thereby pay less stamp duty and registration charges while at the same time, the purchaser  makes payment of sale consideration as agreed upon to the vendor. This process of declaring the value of a property in the conveyance deed at a figure lesser than the actual sale consideration agreed upon for purposes of registration is generally known as  undervaluation of the property. This modus operandi  has two adverse effect on the society.  Firstly, there is loss of revenue to the Government and secondly, circulation of unaccounted money in the market goes up.  The Karnataka Stamp Act1957 has certain sections dealing with under-valuation of property. Section 45-A  inserted in the Karnataka Stamp Act 1957, during 1975  and 45-B inserted during 1991 deal with the subject.  Section 45-A deals with the procedure to be adopted where the properties are undervalued in a sale transaction.

The parties producing documents for registration have to file the market value of property calculated in the prescribed form No.1. If  registering officer has reasons to believe that the market value of the property shown in the document produced for registration is not the actual value of the property in the locality, he may arrive at the market value of such property and inform the parties to pay the stamp duty and registration charges according to the  market value arrived by him. For arriving at the market value, the registering officer will use the guidelines value published by the committee constituted for estimation of market value under Sec.45-B. Thevalues published by the committee are the guidelines value for registeringoffices to determine the market value. 

They are the average value of the property in a particular locality. If the sale consideration of a property shown in the sale deed is lower than the guidelines value pre-scribed for that area, then the stamp duty & registration charges are payable on the basis of the guide-lines value. If the market value of this property is more than the guidelines value, the stamp duty  payableis as per the market value.

The registering authority informs the market value as arrived by him in form 1-A to the parties. This gives options to the parties to contest the valuation done by the registering authority, or to agree or to withdraw the document from registration.

Theregistering officer may proceed with the registration, if  the party pays the stamp duty and  registration charges as arrived at by him. If the parties do not agree with the valuation arrived at by the registering officer and desire to contest the same, the registering officer shall  keep the process of registration pending  and refer the matter to the Deputy Commissioner along with a copy of the document presented for registration for determination of the correct  market value of property and stamp duty payable thereon. 

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Saturday 8 February 2014

An Article about "Registration of documents opposed to Public Policy"

Registration of documents opposed to Public Policy

Can a registration of a document be claimed as a matter of right? Indian Registration Act, 1908, has under section 17 prescribed certain documents which are compulsorily registerable and under section 18, the documents, the registration of which is optional. As such can anybody claim as a matter of right,  registration of a document which is compulsory under section 17 of Indian Registration Act 1908.

Various States have amended the main Registration Act and have framed rules there under.

Karnataka Government has inserted a new section 22–A, with effect from 23.10.1976 which empowers the State Government to prohibit the registration of certain documents as opposed to public policy, by notifying in official gazette, and the registering officers shall refuse to register any such document.

Government of Karnataka through Revenue Secretariat Notification No. RD/14/ MUNOMV/2005, dt. 23/04/ 2005, has in exercise of powers conferred under section 22-A of Registration Act as amended by Karnataka Act 55 of 1976 has declared registration of following documents as opposed to the public policy. This is effective from 06/05/2005.

1.     Site with or without building in agricultural land which is not con-verted for non-agri-cultural purpose under section 95 of Karnataka Land Revenue Act 1964.

2.     Site described as Grama-thana site (form no. 9, 10) or other site declared under form no. 19 under rules framed under Karnataka Municipality Act 1964, but not actually con-verted as site.

3. Site on a revenue land described as Gramathana Site or other site or a site with a building on which no layout plan is approved and a release certificate is issued from local planning authority like BDA, BMRDA, BIAAPA, BMIC.

4.     Site on a revenue land described as Gramathana site or other site, flats, industrial site, commercial site, without requisite permission under section 79A and 7B read with section 109 of Karnataka Land Reforms Act.

Thus the transfer of only the following properties are permitted.

a)    Properties falling under Bruhat Bangalore Mahanagara Palike.
b)    Properties allotted by BDA
c)    Properties in BDA approved layouts
d)  Properties in layouts approved by other local planning authorities like BMRDA, BIAAPA, BMIC etc.

In the preamble the notification, it is stated that many properties are registered based on bogus and fabricated documents which do not pass on legally perfect title to the purchaser. In many cases, the agricultural land is transferred by registration as non-agricultural land without actually converting it to a non-agricultural purpose in accordance with Section  95 of Karnataka Land Revenue Act 1964 and Karnataka Land Grant Rules 1989. This has led to haphazard growth of Bangalore and other cities.

Conversion of Agricultural land

The agricultural land has to be used only for agricultural and related purposes and not for any non-agricultural purpose. If it is be used for any non-agricultural purposes, the agricultural land needs to be converted for non-agricultural purpose under section 95 of the Karnataka Land Revenue Act. The Special Deputy Commissioner is the authorised officer to accord permission for such conversion and prescribed amount of fee which has to be paid. The conversion shall be for specific purposes like residential, Industrial, commercial, which has to be utilized in certain period.  If not the permission for extension of time has to be obtained.

Nearly 70% of population of our country depend on agriculture as a source of livelihood. The agricultural lands in and around cities act as lungspaces. The indiscriminate conversion of agricultural lands deprive the agriculturists of the source of their livelihood, convert the lungspaces into concrete jungles, the agriculturists who do not know any other line of livelihood, expend the money on luxuries, and in course of time may have to struggle to make both ends meet. Thus conversion of agricultural land should be on selective basis based on necessity.  Lay-outs made in revenue lands are not approved by planning authorities, lack basic minimum civic facilities like roads, parks etc.

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Friday 7 February 2014

An Article Regarding "Tax deduction on Home loan interest"


Incentives are offered under the Income tax Act on the investment in housing properties. Incentives come by way of deduction of payment of interest on the borrowed amount to buy or construct the house. Provisions relating to such deductions are provided in Section 24 of the Income Tax Act. The interest paid on a housing loan can be deducted from out of the taxable income of an assessee according to this Section. 

The interest is permitted both on an accrual basis or due basis even if it is not actually paid in the year of accounting. To claim the deduction the assessee has to present a certificate from the lender to whom the interest has to be paid on the borrowed capital pointing out the amount of interest paid or payable. The money should have been borrowed for acquiring the property or for constructing the property or repair of the property. Interest paid on a new loan taken to repay another existing loan is also permitted. The amount can be deducted in five equal installments starting from the previous year in which the house is acquired or built.

The first installment has to be deducted in the year of completion of property construction or the property is acquired and the remaining four installments in the four following years. Deduction for the full year is allowed even if one day is left in the year.

The maximum amount that can be deducted is Rs.1.5 lakhs. The money should have been borrowed on or following April 1 , 1999 for acquiring it or for the construction. It is necessary that such acquisition or construction should have been finished within three years from the end of the financial year in which the capital was borrowed. It has to be certified by the lender that the interest is payable for the loan advanced for acquiring or constructing the house.

The deduction amount is limited to Rs.30,OOO if the money has been borrowed prior to April 1 ,1999.

It is advisable for purposes of tax to borrow and build or purchase instead of using one's own fund. The reason is that if one uses his own fund he will not get any tax deduction from his total income.

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Thursday 6 February 2014

Consumers court orders: Developers cannot hold on conveyance deeds

Consumers court orders: Developers cannot hold on conveyancedeeds

In a series of significant court orders that might come as arelief to thousands of housing societies languishing without a conveyance deed, the consumer court recently held that a developer can no longer hold on to conveyance on the grounds that he has to carry out further construction on the plot.

More than 80% of the housing societies in Mumbai do not have the conveyance deed for their building, the document transferring the plot to thehousing society or the flat purchasers.

Most developers do not execute the conveyance deed as they want to exploit the redevelopment potential of the plot or any additional constructionrights on the plot in future.

In three recent cases that had come up before the consumercourt, developers argued that their rights to any open space or further developmentwill be retained by the developers. The court not only ruled in favour of the society in each case but also slapped a heavy penalty on the developers for defaulting on conveyance.

In Prithvi Enclave Society verses Prithvi builders, the court recently asked the developer to execute the conveyance within four months failing which he will have to cough up Rs.2000/- per day of the delay. According to one of the residents, the society was formed in 2001 and for years the developer didn't bother to either get an occupation certificate for the building or execute the conveyance deed in the name of the purchasers forcing thesociety to move the consumer forum. The court held that unless the developer submits specific building plan approved by the municipal corporation, he cannot with hold conveyance to the society. The consumer court has also ordered thedeveloper to pay sum of Rs 12.13 lakh to the residents.

Similar orders were passed in Silver Arch Spring Society versus Sneha builder and in Pleasant Palace Society versus Jain builders.

In case of Silver Arch Spring, the developer has not only been asked to shell out a certain sum as penalty but also has been ordered to pay interest on registration charges collected from the society.

Just last year, the Maharashtra Ownership of Flats Act was amended so as to make it mandatory for the developer to execute the deed within four months or the residents can apply for a deemed conveyance with thecompetent authority. However, till date not a single file has been clearedunder the amended Act.

According to property lawyers unless the state government simplifies the procedure for deemed conveyance, it will remain only on paper. "Right now residents have to submit 36 documents in addition to running from pillar to post to get the deemed conveyance. The recent court orders are important, inthat they make it clear that developers can't use flimsy excuse of wanting to buildfurther on the plot for not executing the conveyance deed.

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Advocate Selvakumar



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Wednesday 5 February 2014

An Article about "KARNATAKA STAMP [AMENDMENT] ACT, 2009"

KARNATAKA STAMP [AMENDMENT] ACT, 2009

Recently the Government of Karnataka has amended the KarnatakaStamp Act, 1957 imposing stamp duty on governments to sell at 0.25 [point two five] per cent which is very abnormal and not matching with the stamp duty levied in other neighbouring States. The revised rates are effective from 1stApril, 2009.
Article 5(e)(ii) under Schedule to Amendment Act, 2009 is relevant here and it deals with the governments or memorandum of agreements relating to sale of immovable property wherein possession of the property is not delivered and according to which the stamp duty payable would be 0.25 [point two five] rupees for every one hundred rupees or part thereof on the market value equal to the amount of consideration. Thus, for an agreement to sell of the value of theproperty of Rs.50,00,000/-., the stamp duty payable would be Rs.l2,500/- whereas before this amendment the optimum stamp duty payable was only Rs.200/-. In the neighbouring State of Tamil Nadu, the stamp duty payable on governments to sell is only Rs.1 0/- irrespective of the amount of sale consideration. 

On the basis of the agreement to sell, normally the purchasers of immovable property would approach the banks for housing loan. Banks do insist on payment of stamp duty at the prevailing rates for considering theloan application since under-stamped agreements to sell are not enforceable ina court of law. Therefore, the home loan borrowers are compelled to first spend money on stamp duty on agreement to sell, and then approach banks for housingloans. If the deal with the vendor fizzles out, the amount spent by the purchaser towards payment of stamp duty for agreement to sell would go waste since there is no provision for getting refund of stamp duty paid in such circumstances. However, for obvious reasons, some of the property developers are still payingstamp duty for agreements to sell only at Rs.200/ - which is not correct. 

In view of its abnormality, prevailing global economic recessionand the weakened purchasing capacity of the borrowers, the Government of Karnataka may look into the matter afresh and revert back to the old slab system of payment of stamp duty with optimum duty of Rs.200/- for agreements to sell where possession of the property is not delivered to fall in line withother southern States.

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Advocate Selvakumar


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Monday 3 February 2014

An Article Regarding "REAL ESTATE SECTOR NEEDS ADDED INCENTIVE"

REAL ESTATE SECTOR NEEDS ADDED INCENTIVE

Amongst the measures taken by the Reserve Bank of India in recent weeks, a special importance has been placed on the real estate sector as an engine of economic recovery. Concessions have been given on the interest charged on home loans below Rs 20 Lakhs and repayment terms made more liberal fordevelopers who had borrowed from banks.

The price initiatives and regulatory forbearance have evoked a market response; some banks have recently lowered itsinterest rates on new home loans. This should be welcome news to policymakers, who will be keenly watching for signs that the stimulus measures are translating into lower costs for borrowers and, consequently, greater incentives to spend. On the evidence so far, however, these steps have not improved the scaleof transactions in the real estate market. 

Most buyers continue to hold back inthe hope of further drops in prices, while developers find that financial succors give them the power to withhold price cuts. The result may, therefore, prove to be the opposite of what was intended, by delaying the price adjustment that is essential if demand and supply are to balance once again. Thecontinuing uncertainties in the job market would also be holding back potentialbuyers, who would not like to make substantial long-term payment commitments.

A revival in the real estate market is, therefore, linked toconfidence spreading that the worst of the downturn is over. Also, new homes are bought on trust; the buyer pays the seller for a promise of future delivery. The market depends heavily, therefore, on the credibility of the seller. Even with low borrowing costs, buyers will be wary of making commitments to sellers whoshow signs of not being able to live up to their commitments. 

Unitech, a prominent Delhi-based developer, has been trying to raise large amounts of cash to keep its operations going, even as its share price tumbles. And IFCI, to whom Unitech had pledged shares against a loan, decided to sell the shares because falling prices were eroding their collateral value. As the uncertainty about its ability to complete projects due to funding constraints increases, people will be even less willing to either buy from it or lend to it. Similar stories are being played out across the sector with small and large developers. The prospectsof the market reviving in these conditions are grim. 

There is a clear need for further selective intervention. Projects that are close to completion should be encouraged with funding. Some of the funds being raised through special purpose vehicles like IIFC could be made available to developers who qualify on this basis. Simultaneously, moves to consolidate fragmented projects to increase their viability should be explored, once again with strict conditions on the rationalization of prices. 

From the macroeconomic perspective, construction is far too important a sector to be left unattended in today's difficult environment. Targetedaction is needed to get buying and selling back on track.

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Advocate Selvakumar

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