It is being said that the Govt. and Real Estate representatives are negotiating a deal to save the real estate sector, but I think the currently available information suggests that the RE Reps are ignoring a major factor that would be more harmful for Real Estate business in the short and long term
As it seems, there will be an agreed "Fair Market Value" on the conclusion of negotiations, which will be declared as DC Rate.
It means that an investor will have to pay 5% (3% Stamp Duty + 2% CVT) on DC (Fair Market) Rate at the time of purchase, and 2% Withholding Tax at the time of sale of a Plot.
In addition, investor will also pay 1% commission at the time of Purchase, and 1% commission at the time of sale of the same plot.
Moreover, about 1% Transfer Fee/Documentation Charges for the transfer of the same plot will also be paid by the investor.
This means that an investor will have to pay about 10% of Fair Market value (3+2+2+1+1+1 %) on a single plot investment/deal. It means that an investor will not be able to sell a plot until he covers these 10% extra charges.
Such a scenario is bound to damage the real estate market until the percentage of Stamp Duty, CVT, and Withholding Tax is not reduced reciprocally in accordance with the increase in DC Rate.
For example, the currently announced DC Rate of DHA Phase 9 Prism is 30 Lac per Kanal. But if the DC Rate is increased to say 100 Lac (approximate Fair Market Value) per Kanal, then the Stamp Duty + CVT + Withholding Tax (3+2+2 = 7%) will increase from Rs. 210000 (at current rate) to Rs. 700000.
This situation will sharply reduce the number of transactions. So I believe that the Real Estate representatives must take up this matter on top priority, rather than just focusing on Amnesty for Source of Income that perhaps will benefit only the major players in the business rather than the real estate business in general.
Hafiz replied on Sunday, July 24, 2016 05:57 PM
Hmmmm good observation bokhari sb . But right now 210000 on 30 lac is around 7% old rates . Then whats the difference when it goes to 1 crore ??? Kindly check please . Thanks |
AbdalŪ replied on Sunday, July 24, 2016 06:09 PM
Fair Market Tables will be developed and agreed separately. DC Rate Tables which is the domain of provincial government will stay separate. CVT and Stamp Duty being provincial taxes are calculated based on DC Rate Tables and effective July 1, 2016 DC rate is binding for the aforesaid provincial taxes. For Filers, effectively the impact of Advance Tax of 1% on Seller and 2% on Buyer will be calculated on Fair Market Value will be NIL as these are adjustable. However, for Non Filer it will be a big impact i.e. 2% on Seller and 4% on Purchaser of Fair Market Value as for him it will be non adjustable unless he becomes a filer; apparently the intention is to increase the cost of doing business for Non Filers. Hope it clarifies. |
Tahir Islam Bokhari replied on Monday, July 25, 2016 06:27 AM
HafI Sb, 7% of 1 Crore will be 700000 at new rates.
Abdal Sb, It will be unrealistic to have two rates: 1) DC Rate 2) Fair Market Rate, because once you declared to have purchased a plot at DC Rate, you will have to pay 10% Gain Tax on the difference between DC Rate and Fair Market Rate at the time of sale, which will again be a huge amount. |
