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veenzar (Advocate)     02 June 2008

Bombay Stamp Act Amended

The following news item appeared in Times of India.

"In a move to bring in more transparency while generating revenue for the government, the Maharashtra government has amended the 50-year old Bombay Stamp Act to levy 5% stamp duty on development agreements as well as Power of attorney agreements with respect to property transactions. This would mean these instruments will attract the same stamp duty as is leviable on a sale or conveyance deed.

Earlier, developers in order to avoid paying stamp duty, preferred not to enter into a sale deed with the land owner, as such transactions attracted 5% stamp duty. Instead they showed the transaction as an agreement only to develop which attracted only one per cent stamp duty. The amendment seeks to prevent this tendency.

Read more right here… »
The government believes that with this amendment, an increasing number of builders would start registering their transactions as sale deeds instead of development agreements. This would also give them the advantage of having the property in their name.

According to Ritesh Vohra, Director, Investments, Saffron Asset Advisors, there will be better transparency as there would be no incentive to do alternate types of structuring. With power of attorney agreements, there was more scope for wishy-washy structures.

In conveyance agreements, there is no ambiguity in terms of ownership. Eventually it is better for end buyers as there will be a better line of sight in the entire chain of title. He, however, points out that the 5% levy is quite high and the government needs to bring this down to make it more reasonable and ensure less tax evasion.

Advocate Lakhamshi Rambhia explains that earlier, only 10% cases were real development agreements and 90 per cent were actually agreements for sale in the garb of development agreements. The government, however, should not keep on increasing the stamp duty to achieve its targets and should keep in mind the welfare of the people. Flat buyers are already suffering because of rise in prices, now builders will pass on these expenses to the flat purchasers.

Developers have made representations to the government for reducing the stamp duty in the larger interests of the purchasers. Mofatraj Munot, MD, Kalpataru Properties says, the whole idea of a development agreement is a restricted agreement where a builder is permitted to develop. It cannot be equated to conveyance or sale of property. There was a clear-cut distinction in the earlier stamp act. The government is being insensitive to housing as all this ultimately adds to the project cost and makes flats more expensive.

Devang Trivedi, MD, Progressive Group says, the move may bring in more transparency as people would have more authentic documents. In case of disputes that may arise between the land owner and the builder, an unregistered document is not entertained in court but a power of attorney that is registered will be considered.

Having said that, the five per cent stamp duty on these transactions is very high and therefore 100% compliance may not happen. There will be a tendency to undervalue transactions or not to report on transactions. For instance in a Rs 50 crore transaction for a plot, 5% stamp duty would work out to Rs 2.5 crore. The developer may incur this cost, but will ultimately recover it from the flat buyer. It would differ from builder to builder how they will pass on the additional cost.

He further says many deals are done without paying the stamp duty as land owners do not know the law. In tier II and tier III cities or in distant suburbs like Kalyan, Dombivli, farther parts of Thane, Panvel, there may be villagers who would sell the plot to one person and subsequently sell it to a second person for a higher consideration. In such cases, documents not registered will not be valid and weaken the claims of such persons.

Stamp duty expert Sunit Gupta points out that earlier, there was a 10% stamp duty on conveyance or sale deed and builders found a way out in terms of development agreements and power of attorney arrangements. These agreements started in the 1980s and were a perfectly legal way of doing things.

Now with the 5% stamp duty, a few builders will do conveyance agreement while a greater majority will not want to pay stamp duty and will find some loop­holes or ways to escape stamp duty liabilities. On a different note, a section of experts feel the amendment will help in more transparency and reduce the incidence of benami transactions or documents done on somebody else’s name and stamp duty not paid. Akash Deep Jyoti, Head Corporate and Infrastructure Ratings, Crisil emphasises that the stamp duty has been brought down drastically in recent years,

hence, now it is important to use it as a tool to enhance transaction efficiency by bringing parity in various modes of land transactions. It will not only help to enhance transparency in land transactions but will also reduce legal risks involved in the proxy-ownership of land by developers.

From the customers’ perspective, it will achieve desired results only if this encourages developers to acquire land ownership and undertake land conveyance to customers in a timely manner”.

Can any one please provide me with the amendment?


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