The Maharashtra Government is always on a lookout to find new avenues to raise its income. In a move that will further raise the already exorbitant real estate prices in the city; the State has hiked Ready Reckoner Rates for both residential and commercial properties by 5% to 25%, with effect from January 1, 2012. Even as property prices have not gone up much in the past year, total outgo for a new property increased in Maharashtra. The Government has raised the Ready Reckoner Rates by an average of 18 per cent in Mumbai and 5 to 30 per cent in the state.

In specific areas prices of land and property has been fixed as per the government. The calculation is carried out either on the market rate or RR rate, whichever is higher. This means Mumbaiites will now have to pay more Stamp Duty to register the property they buy. Builders will also have to pay higher premiums on the land they purchase which are calculated based on Ready Reckoner Rates which in turn, they will pass on to the buyers. However, the State Government might have to brace for a legal battle with certain segments of the Realty Sector planning to challenge the steep hike in Ready Reckoner Rates in Mumbai High Court.

Ready Reckoner is the market rate of property at which Stamp Duty is calculated. Higher the Ready Reckoner Rate, higher the Stamp Duty and higher your property cost. It differs across areas and cities. If in Worli, Mumbai, it is Rs 25,000 a square feet (sq ft), the Stamp Duty will be Rs 1,250 a sq ft. The Stamp Duty is fixed at five per cent in Maharashtra.

The Ready Reckoner Rate slightly differs from the area’s property price. If the property prices in Worli are Rs 4,000 a square feet, the rate would be Rs 3,500 or Rs 4,500. The rise is highest in Goregaon, Mumbai, at 30 per cent of the 2011 level. In Kurla it has been raised by an average of 15 per cent, compared to 24 % last year.

There is also a catch. The Stamp Duty is calculated as a percentage of either the Ready Reckoner or the property rate, whichever is higher. If the property rate is Rs 10,000 a sq ft and the Ready Reckoner one is Rs 15,000, one will pay duty based on the latter. Experts say property prices have risen and, hence, the rise in the Ready Reckoner Rate. But, if these go down, no one is sure if it will be revised.

The Government’s move comes on the back of lower Stamp Duty collection due to dubious transactions. Many Developers would quote a lower property price on paper, in turn, charging a lower Stamp Duty. If the property price in an area is Rs 10,000 a square feet, the builder would quote only Rs 8,000. As a result, the buyer would pay a lower duty. Experts say these transactions were taking place for premium properties, where the price is very high. Now, with a benchmark rate, dubious transactions could get affected.

This would also lead to higher Capital Gains when selling property. Under Section 50(c) of the Income Tax Act, Capital Gains on the sale of the property are computed on notional value, on the basis of the Ready Reckoner Rate. If you bought a property at Rs 5,000 a square feet and sold it at Rs 10,000, the Ready Reckoner Rate will be Rs 13,000.

The Capital Gains will be calculated on the difference between the Ready Reckoner Rate and the purchase price instead of selling and buying price. Experts say Property Tax is likely to be computed on the Capital Value, going forward. The Capital Value will be based on the Ready Reckoner Rate.

This will lead to increase in property rates, as the property tax will be paid on the capital value. Presently, Property Tax is based on a Rateable Value, which is based on the rent the property is likely to fetch. But, due to the Rent Control Act, the rents are lower, affecting the rateable value.