In one of the biggest property deals, DMart founder Radhakishan Damani and his brother, Gopikishan,bought an independent house in Mumbai’s posh Malabar Hill area for a whopping ₹1,001 crore. They had a deadline to beat — March 31, 2021. To raise revenue collections, the Maharashtra government had reduced the stamp duty on August 26, 2020 on property to 2 per cent till December 31, 2020 and then to 3 per cent till March 31, 2021.
The Damani brothers paid ₹30 crore in stamp duty (at 3 per cent) for the 5,752 sq m land that has a built-up area of 60,000 sq ft.
The Damani purchase holds quite a few lessons for policymakers. Indeed, the Maharashtra government’s decision taken in desperate times has vindicated the Laffer Curve theory supporters — reduced rates of taxes ultimately result in increased tax collections.
While Communists might bemoan and decry the huge concession given to the rich by this stamp duty largesse of the Maharashtra government, policy wonks should ponder on the issue with an open mind. In Tamil Nadu, the stamp duty is an unconscionable 7 per cent. Together with a registration fee of 4 per cent, it forces purchasers to resort to various subterfuges to minimise their stamp duty-registration fee bill.
There is no reason why the stamp duty should not be brought within the GST ambit. There should be tax only on the value addition. Suppose a person buys a flat from the builder for ₹1 crore and after three years sells it for ₹1.5 crore, the buyer has to pay 11 per cent of ₹1.5 crore in Tamil Nadu towards these two imposts whereas logically, in tune with the Value Added Tax (VAT) principle that underpins GST, he should be in all fairness obliged to pay 11 per cent only on ₹50 lakh. The ₹1 crore price the buyer paid first has already suffered the tax.
Both the Centre and States are strapped for revenues and would be loath to emulate the Maharashtra government’s move and take broader lessons from its initiative. But simultaneously other revenue-raising measures in the realm of immovable property can be thought of and implemented.
Why not revive wealth tax that was irrationally scrapped in 2015? The late Arun Jaitley, as Finance Minister, had offered an irrational explanation — meagre collections of ₹1,500 crore per annum that did not even cover the cost of collection. He ought to have broad-based the tax to cover all assets without fear or favour from its obsession with just six assets, raised the exemption limit and upped the rate to say 2 per cent.
Likewise, there is no reason why there should not be any estate duty when the most capitalistic countries like the US and the Netherlands have them. We have kept the duty in suspended animation since 1985 once again on the specious ground that the inheritors often have difficulty in mobilising funds for paying the tax what with estate mostly being in the form of immovable properties.
And, lastly, why should Section 54 of the Income-Tax Act pamper sellers of residential properties repeatedly? Why not make it a once-in-a-lifetime exemption? One can sell a residential property regularly, say, every fourth year and walk away with long-term capital gains tax exemption by ploughing back the capital gains in another property. Should such repeat sellers, if not offenders, be cosseted every time?
It takes an eye-popping event to stir policymakers. Let us hope Damani brothers make our governments take notice and act.
The writer is a Chennai-based chartered accountant