Concessions and Waivers – is There Light at The End of the Tunnel for The Real Estate Sector?
To what extent these efforts of the government help in bringing down skyrocketing Real Estate prices or bringing about an upward trend in the ailing Real Estate sector remains to be seen
The deadly COVID-19 pandemic has taken a large bite out of the Real Estate business. This has inevitably contributed to the downward spiralling of investor / end-user sentiment to invest in new/on-going Real Estate projects. In order to inject some much-needed life in the Real Estate sector, the Maharashtra Government ("GoM") has announced / implemented various incentive and concession schemes and has taken pro-active steps to revive the ailing Real Estate sector in the state of Maharashtra.
OVERHEAD EXPENSES
Every transaction of transfer of immovable property entails overhead expenses under various heads. In Maharashtra, stamp duty and surcharge / infrastructure cess payable on transfer instruments make up a large share.
A. Stamp Duty
Legally, all instruments effecting a transfer of property valued at more than ₹100/- (Rupees One Hundred only) are required to be compulsorily stamped and registered. Sale and Gift are the two major heads under which end users acquire immovable property. Stamp Duty laws in Maharashtra require instruments of Sale and Gift to be stamped as under:
| Instrument of sale | Within municipal limits | 5 (five) per cent of the consideration payable to the seller or the ready reckoner value, whichever is higher. |
| Within the limits of any municipal council / cantonment of any area within MMRDA | 4 (four) per cent of the consideration payable to the seller or the ready reckoner value, whichever is higher. |
| | Within the limits of a gram panchayat | 3 (three) per cent of the consideration payable to the seller or the ready reckoner value, whichever is higher. |
| Instrument of gift | if residential and agricultural property is gifted to husband, wife, son, daughter, grand-son, grand-daughter, wife of deceased son. | ₹200/- |
| if property is gifted to family members being husband, wife, brother or sister of the donor or any lineal ascendant or descendant of the donor. | 3% of the ready reckoner value of the property |
| any other case. | Same duty as can be levied on |
| | instrument of sale on the ready reckoner value of the property |
B. Surcharge / Infrastructure Cess
To support / fund the various ongoing infrastructure projects viz; Metro Rail, Mono Rail, Freeways, Sea-links etc. the GoM in February 2019 increased the stamp duty, payable on instruments relating to inter-alia Sale and Gift of immovable property, in Mumbai, Pune, Pimpri-Chinchwad and Nagpur by adding a surcharge at the rate of 1 (one) per cent of the ready reckoner value of the property ("Surcharge").
Illustration:
Stamp duty on a Sale Deed prior to February 2019 (assuming property is situated in Mumbai City and consideration and ready reckoner value are the same)
| Ready reckoner value | ₹1000/- |
| Stamp duty payable | 5% of ₹000 = ₹50/- |
Stamp duty on a Sale Deed post February 2019 (assuming consideration and ready reckoner value are the same)
| Ready reckoner value | ₹1000/- |
| Stamp duty payable | 5% of 1000 = ₹50/-
Plus 1% of 1000 = ₹10/-
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Total = ₹60/- |
Local Body Tax at the rate of 1 (one) per cent of the ready reckoner value is payable on transactions pertaining to properties situated within the limits of Zilla Parishads and Municipal Corporation other than the Municipal Corporation of Greater Mumbai, over and above the stamp duty and Surcharge.
WAIVER OF SURCHARGE AND CONCESSIONS IN STAMP DUTY
To make investment in Real Estate attractive for investors and reduce over-head expenses for the end-user, the GoM initially announced a waiver in payment of Surcharge for a period of 2 (two) years with effect from 1st April, 2020.
The waiver of Surcharge was followed-up by a concession in Stamp Duty payable on instruments relating to the sale of immovable property between 1st September, 2020 and 31st March, 2021 as under:
| Region | Concession |
| For properties situated within Mumbai Area | | Between 1st September, 2020 and 31st, | 2% from the earlier 5% |
|
| and within MCGM limits | | Between 1st January, 2021 and 31st March, | 3% from the earlier 5% |
|
| For properties situated with the limits of municipal corporation other than Municipal Corporation of | | Between 1st September, 2020 and 31st, December 2020 | 3% from the earlier 5% | | Between 1st January, 2021 and 31st March, 2021 | 3.5% from the earlier 5% |
|
Local Body Tax was also reduced to 0% for transactions between 1st September, 2020 and 31st December 2020 and 0.5% for transactions between 1st January, 2021 and 31st March, 2021.
CONCESSIONS IN VARIOUS CONSTRUCTION PREMIUMS
In addition to providing benefits directly to the investors / end-users through waivers and concessions as above, GoM also took steps towards providing indirect benefits:
(i) by inter alia reducing premiums on Additional Premium FSI and Fungible FSI for residential projects to 35% of market value from the earlier 50% and for commercial projects to 40% from the earlier 60% and waiving off development cess till 19th August 2021; and
(ii) rationalizing premiums payable to municipal corporations and granting concession of 50% on various premiums levied by all planning authorities / local administrations in the State on Additional Premium FSI and Fungible FSI for on-going and new projects up to 31st December, 2021 ("Scheme") to facilitate the construction and completion of many stalled projects in the State.
APPLICABILITY AND IMPLEMENTATION
Key provisions of the Scheme that both developers and end-users / investors should consider before opting to avail the benefits of the Scheme are summarized below:
(i) The Scheme is optional in nature and discretion to avail or not avail the benefits of the Scheme lies solely with the developer.
(ii) The Scheme is only applicable to premiums which are paid between 14th January, 2021 and 31st December, 2021.
(iii) The Scheme is not applicable to Development Charges and other government charges.
(iv) The premium amount will be calculated on the basis of the annual statement of rates / ready reckoner rates as on 1st April, 2020 or on the date of payment of premium, whichever is higher.
(v) The entire stamp duty on the instruments pertaining to sale of units (residential, commercial, industrial etc.) constructed by availing the Scheme will have to be borne by the developer. The developer will have to submit an undertaking to the municipal authority to this effect.
(vi) The list of beneficiaries of the Scheme will have to be disclosed by the developer on its website, to RERA and MCGM. A clause to such effect that the stamp duty has been borne by the developer will have to be incorporated in their respective sale agreements too.
(vii) The Scheme is also applicable on projects which may not have end users, for example schools, shopping malls, premises given on lease, cinemas, hotels etc. However, the developer shall submit an undertaking stating that stamp duty on any instrument pertaining to sale of any such unit constructed availing benefits of the Scheme, shall be borne and paid by the developer.
EFFECT
The effects of the concessions, waivers and other schemes announced by GoM will be two-fold:
(i) reduction of project expenditure and overall project cost to help developers kickstart projects without heavy investments and complete stalled projects;
(ii) direct benefits to the end-user / investor by way of concession in Stamp Duty.
We have already seen the positive effect that the Stamp Duty concessions have had, in driving the sales of unsold inventory of developers. With the waivers and concessions now offered to developers, developers can explore the possibility of launching new projects at attractive prices by passing on the benefits of the subsidized approval costs to the end-users / investors. To what extent these efforts of the government help in bringing down the skyrocketing Real Estate prices in the State or bringing about an upward trend in the iling Real Estate sector remains to be seen.