With the implementation of the GST Act, 2017, various taxes got subsumed under the GST regime. Ever since the GST regime came into force, a large number of demands by the realtors poured in to discontinue stamp duty and registration charges on the property. However, the government has made no move on this front. Hence, the stamp duty and registration charges remain to stay in force even under the new tax framework.
Stamp duty is a tax levied by State Governments on property transactions and may vary for different areas. It is chargeable under section 3 of the Indian Stamp Act, 1899. Every buyer is required to pay the stamp duty in the event of property registration.
Contrasting views on the impact of GST on stamp duty and registration charges
While some sectors have made capital out of the recently enacted GST laws on account of reduction in tax availability of tax credits, other sectors have suffered gloom-ridden growth due to a rise in the prices of products and services.
One such sector is the real estate sector which has witnessed a drastic downtrend, stagnation in demand and has been combatting many regulatory changes in the recent past which inter alia includes real estate. Although GST has been implemented to have ‘One Tax’ across the country by eliminating multiple taxes, it has not been implemented in the true sense because stamp duty is still charged in addition to GST levied on construction services. Stamp duty, as supposed to be levied by the State, varies from State to State and if clubbed with GST, the tax burden can increase to 20 percent in some states.
On one hand, builders and developers believe that subsuming stamp duty with GST will boost sales. Incorporation of stamp duty under GST might serve as a ‘potion’ for the already bleeding real estate sector who may succumb to the wounds caused due to high inventory piled up and cash crunch. Whereas, on the other hand, because a sizeable portion of the revenue earned by the States is through stamp duty on real estate transactions, the probability of the GST entailing stamp duty and registration charges is nil. If states were to relinquish this income, the resources and funds would take a major toll than it already has been suffering.
About property registration
Property registration aids in ensuring one’s ownership of the property. Stamp duty is a significant part of the registration of property. Registration of property against the name of the owner gives him the exclusive legal right over his property and any legal disputes arising concerning the purchased property can be easily taken care of.
GST rates on stamp duty range between 4 to 10 percent, and registration charges range from 0.5 to 1 percent on the value of the property. The stamp duty is added to the price of the property. If the stamp duty charges are not paid within the stipulated time, then every defaulting month 2 percent penalty is added. This penalty can reach a maximum of 200 percent of actual stamp duty charges.
Tax benefit on stamp duty and registration charges of a property
If an Indian citizen purchases or constructs a house property, he can avail of stamp duty exemption under section 80C of the Income Tax Act, 1961. As per section 80C, stamp duty and registration charges and other expenses which are directly related to the transfer are allowed as a deduction. However, the maximum deduction amount allowed under this section is limited to INR 1.5 Lakhs.
This benefit can be claimed only in the year in which the actual payment is made towards these expenses. If the individual buys the property on 30th August 2018 and pays the stamp duty and registration charge, he/she can claim these expenses under section 80C only in the financial year 2018-19. This benefit is available for both an individual as well as a Hindu Undivided Family (HUF).
In the case of joint owners, the co-owners can claim these expenses in their respective Income Tax (IT) return based on their share in the property.
Present-day outline of the real estate sector
It has been a rocky ground for the real estate market due to various procedural and regulatory reforms. The real estate market has found itself on unstable ground for a while now, impacted by the onrush of various legislative and regulatory policies in force. The meticulous amalgamation of reduced stamp duty charges, exemption of Goods and Services Tax, and the modest home loan interest rates may prove to be a strong determining factor in the case of ready-to-move-in homes. The recent cut-off in stamp duty by the Government of Maharashtra acted as welcoming relaxation for the real estate sector and developers in particular. This move by the Government of Maharashtra has led to the setting up of the platform for other state governments to follow this move and set in motion the long-awaited revival of demand in the sector.
The severe consumption downfall due to the NBFC crisis led to a liquidity crunch caused more trembles in the market. All these circumstances contributed heavily to upset the existent established status quo remarking a major downfall of the real estate sector.
Furthermore, the global health pandemic has in no way facilitated the cause of the real estate sector. The steps taken to circumvent the contagion have only surrounded the sector with compounded issues and adverse conditions. The lockdown imposed by the government affected the economy and these effects are persisting. The sector is yet to find the wind, to sail against the waves of distress that are besieging it. The disruption in supply chain and labor availability has real estate still finding its way of escape from this deranged situation, to where it was pre-COVID 19. Nevertheless, one cannot overlook the efforts made by the government to help the sector to get back on the pathway to recovery.
From providing last-mile funding to stuck housing projects; to assorted stimulus packages, the support that has been provided to the sector to help climb out of the abyss, has been phenomenal.