Maharashtra's importance as a corporate hub may take a hard knock with the state government sharply increasing stamp duty on properties taken on lease for 30 years beyond.
Under the amended Bombay Stamp Act, the Ordinance for which was issued on May 7, property owners will have to pay 5 per cent stamp duty on 90 per cent of the market value of the property. The existing 5 per cent stamp duty is on the annual lease rental.
"Normally, the nominal stamp duty is borne by the owner. Now, they will pass the huge additional burden on to the corporates," an industry source said.
The move will impact a host of corporates, which have been operating from leased properties. The Indian Hotels property located on a government leased land in south Mumbai is one property whose lease is set to expire soon.
Banks and financial institutions will take the biggest hit as they will be required to cough up a higher stamp duty when the lease agreements of their branches come up for renewal.
For a property taken on lease for a period between 10 and 29 years, the stamp duty will be levied on 50 per cent of the market value of the property.
Commercial lease agreements, which have been entered into for less than five years, will continue to enjoy nominal stamp duty rates -- on 10 per cent of the market value of the property.
Secretary for Revenue and Forests Department KS Vatsa told Business Standard: "We are plugging the loopholes that were being exploited in the realty sector. Companies normally enter into long lease agreements to evade paying stamp duty to the state government."
"When properties are being leased out for more than five years and even up to perpetuity, it is basically a conveyance of the ownership into new hands. Merely, the technicality allowed realty owners to transfer their property rights to avoid paying a high stamp duty rate on the transaction. This is now effectively being rectified," Vatsa pointed out.
Vatsa noted that the market value computation for leasehold realty agreements would come into force the moment the existing lease expired and came up for renewal.
In a parallel move, the government has also slapped notices on 20-odd television channels to ensure that they begin registering their advertisement contracts and pay stamp duty on the "instruments" so created.
Confirming this development, a senior government official told Business Standard: "Shortly, we will start issuing notices to film producers too for registering contracts entered into with their stars. We will also start charging the new stamp duty rates on the market value of properties."
When contacted, a Zee television official denied knowledge of any such notice.
The stamps and registration department had issued notices to media channels in June 2004 for registering advertising contracts.
"When a producer enters into a contractual agreement with a film star, say for Rs 2 crore (Rs 20 million), he would have to register all the documents with the registrar if it is to be a legally binding contract recognised by a court of law. The stamp duty payable on such a transaction would be 0.25 per cent of the contract that would amount to Rs 5,000 as stamp duty," the official said.
