Stamp Duty

      Stamp Duty

In redevelopment there are two modes of consideration (a) Extra Space and (b) Alternative accommodation attracts stamp duty.

      (a) Extra Space

When a building is redeveloped, stamp duty equivalent to 1% of total market value of the property has to be paid for additions made to the existing structure. This means members of the redeveloped building of a society, who have received a little more apace in the “extra space” given by the developers while using TDR. After payment of the stamp duty, the same is required to be registered with the Sub-Registrar on a payment of 1% of the market value or Rs.30,000 whichever is less. The current Ready Reckoner available determines the market value.

The above provision for payment of Stamp duty is provided in Article 5 Schedule 1 of the Bombay Stamp Act, 1958 introduced w.e.f. 7.2.1990.

Further as per Article 48(g) of Schedule 1 of the Bombay Stamp Act, 1958 the P.O.A. attracts Rs.100 Stamp Duty to be paid if the Stamp duty on the development agreement is paid appropriately.

      (b) Alternative Accommodation

The agreement for alternative accommodation between the builder and the flat owners also attracts Stamp Duty as per Article 25(d) of the Schedule 1 of the Bombay Stamp Act, 1958.

[A] For the area given by the developer equivalent to the area owned prior to redevelopment the cost of construction provided in the Ready Reckoner will be considered at the market value.

[B] For any additional area given to the member the market value will be calculated as per the Ready Reckoner value or the consideration of old area provided in the Ready Reckoner.

If an old building (built prior to 1940) in Mumbai city is redeveloped, stamp duty up to a maximum of 5% is levied on the capital value calculated based on the cost of construction plus 100 months rent. If a building in the suburbs is redeveloped, the stamp duty as per the current market rate registered in the Ready Reckoner is calculated on the extra space provided by the developer in each flat. The Bombay Stamp Act, 1958 has provision for a duty of 1% of the total value of the property redeveloped. The duty is liable to be paid as per the agreement between a builder and the housing society. This duty is in addition to that for the existing structure.

Note: A recent amendment, the Bombay Stamp Duty Act provides for levy of 5% Stamp Duty on Cost of Immovable Property mentioned in the Power of Attorney and also 5% duty on the Development Agreement between the Builder and the land owner.

      Property Tax

The tax is based on what is known as ‘Rateable Value’. The parameters for the same are decided by the B.M.C. for new flats, current rateable value will be applied, which is bound to be much higher than the former rateable value and consequently the property tax will be higher.

      Permission to builder for construction of additional floors

As per Sections 45 and 48 of Income-tax Act, 1961, the amount received by a society from the builder for permitting him to construct additional floors on existing building of the society by utilizing TDR/FSI belonging to him is not chargeable to tax since there is no cost of acquisition to the society. Om Shanti Co-operative Housing Society Ltd. V. ITO ITAT ‘C’ Bench, Mumbai