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Government notified rate for land goes down by 20% in Madhya Pradesh

The decision is a first move by the Kamal Nath-led Congress government to simplify land rates

Jyoti Mukul  |  New Delhi 

Workers move across arid landscape at site of Pachpadra refinery project | Photo: Sai Manish
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The government has decided to overhaul benchmark rates for land to boost construction and real estate transactions. Though the state has followed examples set by Tamil Nadu and Haryana governments among others, experts do not see the move as helping the sector unless market rates for homebuyers come down, too.

This is the first move by the government to simplify It is expected that in order to avoid any impact on the compensation, that is given based on these rates when land is acquired for industrial and other purposes, the state is likely to increase the compensation amount to 2.5 times from the current two times of the guideline rates.

The state Cabinet on Wednesday decided to reduce guideline rate uniformly across the state by a factor of 20 per cent. But the maximum registration rate in urban areas has been increased from 10.3 per cent to 12.5 per cent and in rural areas from 7.3 per cent to 9.5 per cent, so that there is no net revenue loss to the state.

The “market value guidelines” (guideline rates or circle rates) are used for charging stamp duties, cess, registration fees. "The move is expected to be revenue neutral for the state, while at the same time help in revival of construction and the real estate sector," Manu Srivastava, principal secretary, commercial tax, in the government, told Business Standard.

Anuj Puri, chairman ANAROCK Property Consultants, welcomed the move but said that by simultaneously increasing the registration cost the government more or less nullified any positive impact on homebuyers. “The softening of circle rates would have a positive impact only if property prices soften,” said Puri, adding that the move could negatively impact the exchequer more than the actual buyer.

For instance, in most cities, the circle rate/guideline rate is lower than the actual rate at which a property is sold. To save on registration costs, many register properties on the basis of circle rates instead of the actual market value of the property. “By lowering these rates by 20 per cent, the gap between the market value and the circle rate will increase, giving way to more cash transactions,” said Puri.

Rates are decided by district valuation committees after approval from the central valuation board in the state, and are called Stamp Valuation Authority (SVA) rates. For transactions done below these rates, incomes tax is calculated on the guideline rate, which increases the outgo for the seller.

The state also made changes in applicable fee where women are co-owners. Presently, if a woman is a co-owner, the instrument is chargeable at an ad-valorem rate of 1 per cent stamp duty and 0.8 per cent of registration fee. It has been decided to cap such stamp duty at Rs 1,000 and registration fee at Rs 100 if the woman co-owner is wife or daughter.

Similarly, stamp duty on instrument of gift of immovable property to family members is charged at an ad-valorem stamp duty of 2.5 per cent and registration fee of 0.8 per cent. The state decided to reduce stamp duty to 1 per cent and subject to maximum of Rs 500, and registration fee subject to maximum of Rs 100.

Srivastava said agricultural land and land in and around urban areas were defragmented and sold to small investors over a period of time. Smaller plots have higher market value guideline rate per unit area as compared to larger land parcels. But this led to anomalies in the value of the land when they were to be reconsolidated or defragmented again.

"Consolidating — after buying the same land in multiple parts from multiple users — would make the land cost anywhere between two and 10 times. This anomaly has been removed and from April any defragmentation or reconsolidation in a single instrument will be evaluated as it were a single consolidated larger piece," said Srivastava.

Tamil Nadu had in 2017 reduced these rates. “Though the move was aimed at curtailing the soaring market value of property, it was barely a success. It paved the way for more black money transactions because property prices (market value) maintained status quo with no reduction,” said Puri.

He cited the example of Haryana that reduced or revised circle rates twice in 2017 to push property sales. In fact, Gurugram is one city where in few micro markets the gap between the circle rate and the market value is almost on a par or has very minimal difference, said Puri.

First Published: Thu, June 20 2019. 16:55 IST