After a series of reforms, the stamp duty and the registration process have paved way for better returns to the exchequer. Now the reformed system is about to be energised to make property marketing more transparent, clean and visible. As R S Gull reports the exercise may bring the duty on property transactions down.
On a freezing and boring routine day on January 16, 1998 major deal was struck in a Srinagar court. The son of Kashmir’s last monarch Karan Singh sold its 28 acre palace the erstwhile Oberoi Hotel on the Zabarwan foothills to Narinder Kumar Batra for Rs 10 lakhs! The same day Batra transferred all his rights in favour of Lalit Suri’s Bharat Hotels, a company owned by a non-state subject, through a general power of attorney. The hotel was redesigned as the hotel at Grand Palace.
The deal triggered a lot of media debate. “A palace for a song” was one of the famous headlines that would be part of the debate in the Kashmir trade circles for a long time. These debates failed to deliver what they were aimed at for various reasons of governance and ‘friendship’. But what was stark was the property that could fetch many hundred crores was grossly undervalued and the system looked the other way. The deal fetched only Rs 1.08 lakh to the state exchequer! Was a prohibitive stamp duty a factor for undervaluation?
For reasons beyond Article 370, the system of stamps and registrations that is directly linked to the sale and purchase of immoveable properties was never permitted to evolve as per the forces of the market. Since most of the people invested in landed estates on long-term basis, it was the easiest way out for retaining the black money appreciating under the nose of the law. And the law barely took care of the crisis that made it an ass. Many think it is one of the factors that pushed the land prices through the roof over the years.
In most of the Indian states, the stamps and registrations offer the major component to the exchequer after sales tax (now VAT or commercial tax). Even the neighbouring small state of Himachal Pradesh, explained an officer who wishes not to be named, raise ‘stamps and registration’ duty ten times more than the J&K! “Madhya Pradesh gets Rs 6000 crore a year as a town like Bhopal raises Rs 400 crores a year,” he said. But J&K has always remained a pathetic case where the duties for real estate deals could never make any significant contribution (see table).
It is a long story behind the mess. “It has evolved like this,” says Khawaja Bashir Ahmad, who retired recently as state’s Commercial Taxes Commissioner. “See the stamps are printed by the Sales Tax department, these are distributed and sold by the Department of Treasuries and registrations are carried out by judiciary.” The revenue department’s control is nominal.
The system owes its genesis to a pre-partition circular of 1920 in which the chief justice of the state was assigned the job of the inspector general of registrations. The system continued and when in 1968 there were bifurcations of the systems within the revenue deartment, the judiciary continued with the tasks. It has an elaborate system of sub registrars that execute the property deals and nobody ever thought of taking a close look at the system. Right now, J&K is the only state in India where judicial officers are tasked to execute the land deals!
Till recently when the reforms at all India level forced a rethink on the issue, nobody applied common sense here. How can chief justice of a state be made an apparent subordinate to an administrative department? Why judicial officers responsible primarily for the dispensing justice should be made part of an administrative set up? Never did the administration wink an eyebrow over a case of brazen undervaluation thinking it might create a situation of confrontation between the two appendages of the system.
In July this year, the State Vigilance Organization investigated a case. It booked Kunal Sharma, a Tehsildar of Reasi along with his deputy Rattan Singh (Katra), Girdawar Hukum Chand, Patwari Om Parkash and Swarn Singh Salaria, a resident of Chaotana, Pathankot in Punjab and Harbans Singh, a resident of Bishnah Jammu in a Rs 9.55 crore revenue stamp duty scam.
The revenue officials helped the civilians in preparing incomplete and misleading revenue extract for a 52-kanal land in Kundorian Katra. While they issued the revenue extracts of the land, they deliberately skipped mentioning that ‘Hotel White’ is located on this land. On the basis of the document, the price of the estate fell from Rs 195 crores to Rs 35 lakh and the deal was actually struck at a stamp duty of Rs 2.52 lakh – a net loss of Rs 9.55 crores to the exchequer. The deal was huge and the property visible, so it could be traced. “There could be hundreds of such deals that may not be coming under the scrutiny of the supervisors under the system,” agrees an official of the finance department.
That is not the only problem faced by the government. A senior law ministry official said the issue goes beyond loss to the exchequer.
“There is no central registry in which one could see which property deal happened where?” he said. “We have a number of cases in Jammu in which the non-state subjects started with a rent deed and within years executed purchase-sale agreement and it is huge in Kathua area.” Under the existing system, there is no procedure even at the district level where the registrations could get listed.
Lately though, the reforms started. Muzaffar Hussain Beig, the then finance minister said in his 2004-05 budget speech that the government would rationalize the stamp duty. “It would be done in a manner that rates do not dampen and spirit of honest payers are discouraged from resorting to evasion,” he said.
“There will be area wise valuation of land and property, which would be minimum benchmark value for registration.” Next year, he announced slashing of stamp and registration duty from 21 to seven percent in urban and 14 to five percent in rural areas. “For better compliance and higher receipts the government would fix slabs for duty as per the commercial value on zone basis,” he said.
As the revenue officials started the exercise of fixing the benchmark rates in rural and urban areas, people in Jammu and Srinagar went to the court against the order. It hanged fire for many years till the stay orders were vacated. Only last year the minimum benchmark valuation finally took place.
Beig’s successor Abdul Rahim Rather adopted de-mating of stamps in 2008-09, and reduced stamp duty by 25% for women acquiring property as part of his gender sensitive budgeting vision. In the last budget he presented for the current fiscal, Rather admitted in his speech that “the actual amount of revenue from Stamp Duty and sale of stamps is far below its potential for the reason of the vendors of immovable properties and the vendees showing the consideration for sales much below the actual exchange price”.
This mal-practice, he said, was not only promoting generation of black money but also causing huge loss to the state exchequer. “On the other hand, genuine buyers of immoveable properties who are willing to pay the market price in white money, are put in a quandary while the land mafia manages to grab such properties at throw away prices with the help of their black money,” he said.
In order to do away with the obsolete systems, Rather went a step ahead on the reforms front. “An exclusive organization for administration of Stamps Duties and Registration on the pattern followed in other states is also need of the hour,” he said and announced introduction of a comprehensive bill.
The Court stays are vacated. Benchmark property costs are fixed on zone patterns for both rural and urban areas. Though the systems of execution are not changed, the reforms have started paying. “Earlier, what we were collecting as stamp duty for the whole year was collected in barely six months this year,” said Commissioner Secretary Finance Sudhanshu Panday. “When you revamp your systems tax collection automatically goes up and there is still lot of room for improvement.”
Early this year the government amended the Stamp Act, 1977 to make it broader and modern in tune with the requirements of a new market. The rules that followed explained the roles and responsibilities of a new regime that will take care of the stamps and registrations. A central valuation board would be set up (under SRO 303 of October 4, 2011) that would not only fix the market value of properties on zone to zone basis but will receive the entire information of property transactions entered by the district valuation committees. This board will be presided by an inspector general of registration (not a police officer). A deputy commissioner will head the district committees.
Now, fresh market valuation will be undertaken every year in April. Another order (SRO 304) issued on the same day has detailed the roles, responsibilities and the designated officers for preventing undervaluation of instruments.
Sources in the government said the first batch of officers is currently being trained to understand the nuances of a new regime that eventually will become a fully-fledged organization. Certain positions have already been created and most of these would be manned by a mix of revenue and finance department officials who are directly linked to the exercise. Once this system stabilizes, sources in the government said, the government would take a final call for setting up a full-fledged department. And there is a huge possibility of reducing the stamp duty further so that transactions are clean and real estate costs breathe easy.
