Agreement for sale / Sale Deed / Stamp Duty

[bhaskarjk]

This is my first post to this forum. I could not resist.

There has been much polite discussion on this topic. Perhaps it is time we called a spade a spade.

ngupta, what you were asking about is actually tax evasion, and no, there is no "legal" way to evade taxes (even if you call it "minimize"). And yes, black money can be paid by "cheque/DD" (as many of the current Tihar inmates can certify).

Shame on you for asking such a question. I am happy that you did not get any moral support from this forum, and I hope that was one of the reasons behind you not going ahead with that transaction.

bboy, we should not blame the government (as an excuse) for our not paying of taxes. It is a conscious personal choice, punishable by jail. But I guess most (small time) tax evaders are counting on govt being fully tied up with netting the big fish.

tvsh, what would you prefer: 20% premium vs. 100% penalty with some jail time as a bonus?


PS. I've done multiple property transactions - registered for actual sale value (much greater than the guidance value joke amount). I'm proud to pay my taxes.

[ngupta]

This is my first post to this forum. I could not resist.
There has been much polite discussion on this topic. Perhaps it is time we called a spade a spade.

Internet Forums are easy mediums to hide behind NETWORK and show our real side.
Thanks for starting non-polite mails.

ngupta, what you were asking about is actually tax evasion, and no, there is no "legal" way to evade taxes (even if you call it "minimize"). And yes, black money can be paid by "cheque/DD" (as many of the current Tihar inmates can certify).

Shame on you for asking such a question. I am happy that you did not get any moral support from this forum, and I hope that was one of the reasons behind you not going ahead with that transaction.

I wonder the interpretations drawn by few readers. My first posting was:

Hi All

While to talking to one developer, he stated that say agreed value is Rs 40L to be paid by DD,
whereas government guidance value is say mere Rs 10L.

For such case, in order to pay minimum enough registration stamp duty,
follow this process:

1. Make Agreement for Sale for Rs 40L. (get it franked for Rs 200)
2. Make Two DD, one for Rs 30L and other for Rs 10L
3. Then make sale deed for Rs 10L with details of second DD only.
4. Calculate stamp duty as per Rs 10L which is applicable guidance value and make DD in favor of registrar.
5. Get Sale Deed Registered.

Is above process correct legally.

As I am neither an expert and nor BIG TIME REGULAR investors
like PROUD tax payer bhaskarjk, bboy and few others.

Mere intention was to not fall in trap and cross-check Developer statement.
May be my statements need rephrasing. Unsure what that shall be.
Thanks to you all, I did not fall in wrong way of doing.

I hope above should stop all nuisance being created in this mailing list.
Stops Polluting this otherwise very helpful mailing list.

[tvsh]

Also, it is true that you have not seen any advertisements with two different prices, but just try telling the seller that you will be paying everything in white and need to keep proper payment records; then come back and tell me if he is still willing to sell the property to you for the advertised price. The converse is also true; that is, if the seller is the one who is asking for full white, then the buyer will naturally quote less! Also, not sure in what way the government is responsible for this inflow of black money. High stamp duty and registration charges or high income taxes? Either way, the black money business is not going to go away even if the duty and tax rates are brought down!

I have bought more than a handful of sites and believe me, being an ex-NRI, all my funds were white and legality and morality apart, it made perfect financial sense for someone like me to pay full in white as, it is better to pay 7.78% stamp duty as compared to paying 20% capital gains tax on the gains we might make later. Yet there are very few sellers in the market who agree to accept in white. Either they just flatly refuse saying that they do not want to deal with tax issues or demanded me to foot their tax liability bill.

The only disagreement seems to be that you and some others think it is legally and morally right to deal in black money and "minimize" tax, but I totally disagree with that and say that tax "evasion" for whatever reason is not right both morally and legally.

The disagreement is that you are saying that it is not legally and morally correct to evade tax, even when it is impractical to follow the law. My point is whether one like it or not, he or she has no choice since the system that is in practice is such that it is virtually impossible ( other than buying sites in an auction) to buy and sell Real estate in an open market without dealing in black money.

[tvsh]

tvsh, what would you prefer: 20% premium vs. 100% penalty with some jail time as a bonus?

Bhaskarjk,

Welcome to the forum.

I do not care whatever is the penalty , If it is applied to one and all equally. Nowhere in the developed world you see dual values for real estate ( Guidance Value and Market value). The very fact you have such a system means that gov't is aware of such a system and allowed it to thrive. Instead of nipping it in the bud, they have let it to thrive and become a monster now. This system of "guidance value" is there since atleast 2 to 3 decades now. Why don't we see "guidance value" for everything from commodities, groceries to stocks? Since you asked for my preference, my preference is for Gov't to not only make laws that are only misused to go after someone it does not like, but also enforces it forcefully and impartially.

[bboy]

Dear 'tvsh',

Do you sincerely think that your arguments will hold up in a court of law in India or in any other country? If yes, then I am ready to forget the moral part of this whole deal and do business the way the majority are doing. If not, then what you are professing is totally illegal, if not immoral too.

Additionally, I am quite glad that you are now agreeing that when you wanted to pay in full white, some sellers "demanded me to foot their tax liability bill". Well, my way of looking at it is slightly different from yours. The advertised price is a discounted price for white payment of the guidance value and black above that. There is no discount if you want to pay full white; then you have to pay the full price which includes the tax liability of the seller. This is exactly what I have stated a couple of posts before and you disagreed with!

Regards,

bboy

[tvsh]

Dear 'tvsh',

Do you sincerely think that your arguments will hold up in a court of law in India or in any other country? If yes, then I am ready to forget the moral part of this whole deal and do business the way the majority are doing. If not, then what you are professing is totally illegal, if not immoral too.

You know law in India is impractical and a joke. Can you honestly tell me why there is "guidance Value" for property? Why is it so much lesser than the real value? Do you think that the government does not know what the market value of a property is? Can you tell me why MUDA sets the Guidance value is Rs 600 for Dattagalli 3rd stage today and sets the minimum reserve price for auction of the sites in the same area at Rs 2000 per sft? Remember we are talking about the same government agency. If you can come up with a logical argument for the dual rates set by the same government agency and the vast difference in the rates, then I rest my case.

Additionally, I am quite glad that you are now agreeing that when you wanted to pay in full white, some sellers "demanded me to foot their tax liability bill". Well, my way of looking at it is slightly different from yours. The advertised price is a discounted price for white payment of the guidance value and black above that. There is no discount if you want to pay full white; then you have to pay the full price which includes the tax liability of the seller. This is exactly what I have stated a couple of posts before and you disagreed with!

I have already provided examples to demonstrate that your way of looking at the pricing is incorrect. (Look at the reserve price for aug 18 auction, reduced to 21 lacs, the same was 24 lacs for aug 8th auction (look at vijayakarnataka, mysore editionf or the AD), the market rates for 30x40 sites are between 22 and 24 lacs. http://mudamysore.org/English_18-8-2011.pdf ).

The biggest issue I have is with members judging others morality with their moral yard stick. Let me elaborate with an example. If someone buys a site in dattagalli today @ 2000 (MV)rupees per sft and registers it at Rs 600(GV). The difference being 1400 between guidance value and market value. The amount of stamp duty he saves is 7.78% of 1400 = 108.92 for each square feet. So when the same person sells the site, he has to pay 20% of the gains as capital gains tax. so he or she would be saving Rs 108.92 and end up paying 280 rupees as capital gains tax. Tell me if everyone does this to save money? or cheat the gov't? Instead of punishing the violators, the gov't has come up with a ridiculous system of "guidance value" and let it thrive. Laws should be practical and one should be expected to put a reasonable effort to follow the law.

The difference of opinion is that you seem to indicate that the government responsibility ends at the point of making the law and my point is the government's responsibility goes beyond just making laws, they need to make it practical, consistent and implement it impartially.

[bboy]

I wish A Raja and Kanimozhi, definitely much more powerful people than you and me, could vouch for your comment! Law being impractical or joke are not excuses to break them!

Why there is a guidance value? Well, if it is not there then people will be 'gifting' property left and right without paying any money at all!

Why the guidance value is less than the "market rate"? Well, the market rate fluctuates up and down and it is probably impractical for the government to fix it every few months. So they stick to an average value over a period of time. Also, those values are generally derived from the grossly under stated value that people register their property for.

If the 24 to 25 lakhs property can be bought for 21 lakhs by paying white, then I surely would buy that property. The 3 to 4 lakhs difference would easily cover the additional duty and registration charges and still the cost would be less than 24 lakhs! Why people are not buying it? May be they have a lot of black money that needs to be hidden in the 24 lakh property which is registered for 10 lakhs and may be there are many such properties available? Moreover, it is in the mindset of people; looks like dealing in black has some social status and puts one in that "ultra-rich" class!

All this and your other questions doesn't require a genius to answer clearly. However, a person whose intent is to "take maximum advantage" (a politically correct term for cheating) of the system can invent a million excuses to do so. And I am sure that you can be really inventive!

You know law in India is impractical and a joke.

[tvsh]

I wish A Raja and Kanimozhi, definitely much more powerful people than you and me, could vouch for your comment! Law being impractical or joke are not excuses to break them!

Why there is a guidance value? Well, if it is not there then people will be 'gifting' property left and right without paying any money at all!

Why the guidance value is less than the "market rate"? Well, the market rate fluctuates up and down and it is probably impractical for the government to fix it every few months. So they stick to an average value over a period of time. Also, those values are generally derived from the grossly under stated value that people register their property for.

Do you know about gift deed? Gift deed is for gifting property and it can be done by paying Rs 1000 as stamp duty irrespective of the market value of the property. So your argument of guidance value is to prevent people from gifting property falls flat. You can argue for the sake of argument. It will be a waste of our time. Real estate is not stocks to fluctuate to 30% of the value. Guidance value should reflect the market value on the day it is announced. The gov't can do the exercise once in a few months.

If the 24 to 25 lakhs property can be bought for 21 lakhs by paying white, then I surely would buy that property. The 3 to 4 lakhs difference would easily cover the additional duty and registration charges and still the cost would be less than 24 lakhs! Why people are not buying it? May be they have a lot of black money that needs to be hidden in the 24 lakh property which is registered for 10 lakhs and may be there are many such properties available? Moreover, it is in the mindset of people; looks like dealing in black has some social status and puts one in that "ultra-rich" class!

You need to have an understanding of the basic terms and the process used, before you start arguing. I mentioned the "reserve price" is 21 lakhs. Reserve price is the price at which the auction starts and not the final price at which the auction concludes. so the site sells anywhere between 21 and 24 lacs depending on the demand. This shows there is no discount when bought in the open market with black money. You were mentioning that the seller gives a discount to the market value so that the buyer colludes with the seller and shares the saving of the 20% capital gains tax.

All this and your other questions doesn't require a genius to answer clearly. However, a person whose intent is to "take maximum advantage" (a politically correct term for cheating) of the system can invent a million excuses to do so. And I am sure that you can be really inventive!

No amount of arguments can change your opinions. I give up. Thanks for keeping the discussions civil.

[PlotGuy]

I love a spirited discussion. All of you made some interesting points and I learnt something along the way.

[bhaskarjk]

Do you know about gift deed? Gift deed is for gifting property and it can be done by paying Rs 1000 as stamp duty irrespective of the market value of the property. So your argument of guidance value is to prevent people from gifting property falls flat.

Dear tvsh,

You really should read the rules before making arbitrary statements. Stamp duty is Rs. 1000+ only in the case of gift to "family members" (husband, wife, son, daughter, daughter-in-law and grand children). Otherwise normal rates on guidance value apply. See http://www.karigr.org/modeldeeds/giftd.htm

Have a nice day!