With new depreciation formula, the taxes on old properties will be more
New depreciation formula, the taxes on old properties
Recently, Maharashtra State Government circulate new circular, which aims to increase the stamp duty revenue with the help of change in method of calculation of depreciation in old residential as well as commercial building and it has caused a flutter in the real estate industry of Mumbai.
As per the statement of legal experts, The department’s November 4, 2015 circular showed that property value has rise by up to 35 percent. Consequently, it is the combined liability of both seller as well as buyer of the property as it can increase by up to 75 percent when they pay stamp duty¸ capital gains tax and income tax. Apart from that it could also do the negative impact on the real estate market in the Mumbai city as well as in state. A realtors’ body, National Real Estate Development Council (NREDC), recently wrote to the finance minister of state by stating that people will find it hard to sell and buy immovable property in an in an already “depressed and a very slow real estate market”. The more he added that “This circular will change the method of calculation when it comes to the depreciation of property in respect to the old buildings and due to that we increase the value of all kinds of constructed properties”. However; the real estate experts warned that this change in the method of calculating depreciation will also add substantially to the cost of premises and it can make the property even more burdensome for those who want to buy property.
Till now the state government guidelines were specifying that buildings age will be taken into the consideration and due to that the value of the building can be depreciated due to the age of building. However; in present, land is no longer a consideration for calculation of depreciation. According to Lawyer Anil Harish, a real estate specialist stated that this new method of calculation of the property will increases the ready reckoner value of at least by the 30 percent because the depreciation is not allwed after certain level. And therefore it will increase the stamp duty directly amount. The more he added that the circular now allows that depreciation to a lower extent and due to that the value of premises will be higher for any property and it would increase the quantum of the stamp duty without any confusion”.
According to Ashok Narang, the property consultant “This circular will have a negative impact on the real estate market and the volume of business in real estate in the city Mumbai as well as in state because it will create little more complications for valuation of property for computation of capital gain tax as well”. It will draw a impact on property buyer as they have to pay the excess stamp duty while the seller has to pay additional amount for the capital gains tax. However; government will receive additional revenue by increasing the stamp duty in long run, it will dampen the number of transactions.
How new rule will hit the real estate market?
According to the circular of November 4, 2015;
If you have a 150-square-metre office, which is equal to the 1,614 square feet and it is located at the 4th floor of a 30-year-old building in the area of Veer Nariman Road, Zone 2/16 of Fort division.
So the value of land will be;
- As per old method of calculation:
For commercial building the rate per square metre * Area of office * Depreciation factor for age of building
Rs 5, 01,300 * 150 * 0.6 = Rs 4, 51, 17,000
Total value of the property = Rs. 4, 51, 17,000 (Rs 4.5 crore)
- As per new method of calculation:
Rate per square metre of open land * Area of office
Rs 2, 19,400 * 150 = Rs 3, 29, 10,000
Rate per square metre of commercial building Less Open land rate * Area of office * Depreciation factor for age of building
Rs 2, 81,900 * 150 * 0.6 = Rs 2, 53, 71,000
Total value of the property = Rs 5, 82, 81,000 (Rs 5.8 crore)
