The Hindu Business Line : VAT a relief

When one buys a property for Rs 1 lakh and sells it for Rs 5 lakh, he is taxed on the Rs 4 lakh of capital gain. And when the buyer in turn sells it after, say, five years for Rs 10 lakh, his capital gain is Rs 5 lakh. This is how the capital gains tax regime works, which is perfectly logical and rational. But not so the stamp duty regime.

A flat bought in Delhi by a non-senior male from the existing owner for Rs 40 lakh attracts a stamp duty of 8 per cent on Rs 40 lakh. And when the same flat is sold, say, after five years for Rs 60 lakh, stamp duty would be collected at 8 per cent on Rs 60 lakh.

Stamp duties

Somehow the principle underpinning the concept of value added tax (VAT) was lost on the government when it came to stamp duties. But wisdom seems to have dawned on it now and it is proposed to usher a regime akin to VAT when it comes to imposition of stamp duty.

The proposal is that in the above example with stamp duty having been already paid on Rs 40 lakh in the first sale transaction, the second transaction will attract stamp duty only on the incremental value with reference to the value at the time of previous sale. And this incremental value in the example on hand is only Rs 20 lakh.

This is how a VAT regime operates to overcome the vexed problem of cascading effect that naturally occurs if every successive transaction were to be taxed at its transaction value and not at its incremental value, and its extension to the stamp duty regime is naturally going to be welcomed by the investors and dealers in property.

Logical switchover

Rational as the proposed switchover is, it would call for better record keeping at the registrar's office if the regime has to work successfully without involving any harassment to the public. Each property must be uniquely identified which has already been achieved by several progressive State governments, thanks to extensive computerisation of property records.

In addition, each successive transaction involving changing of hands of the property should be properly recorded, especially the amount on which the duty was paid assuming the fair value or the guideline value determined by the stamp duty authorities was substituted for the apparent consideration. This would be essential so that the onus of finding out the incremental value is not on successive buyers but is instead on the stamp duty authorities who, with the infrastructure at their disposal, are eminently suited to discharge this function.

The system should also be comprehensive enough to deal with cases of partial sale if the property comprises multiple units. For example, if a building has four identical floors and was sold for Rs 40 lakh in the first instance attracting stamp duty on this amount and a few years later one floor is sold for Rs 20 lakh, the stamp duty should be charged only on the incremental value of this particular floor which is only Rs 10 lakh. Like they say, the devil is in the detail. One hopes the government will pay attention to such minutiae.

(The author is a Delhi-based chartered accountant.)

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