The terminology ‘undervaluation’ is frequently used in matters of transfer of property,which has a direct bearing on payment of stamp duty and registration charges payable to Government. Before turning upon the subject ‘under-valuation’, it is necessary to understand the constitutional provisions relating to stamp duty. Articles 246, 265, 268,269(1) of the Constitution of India are relevant here. Article 246 refers to the powers of Parliament and State Legislature to make laws. The Constitution of India has union list,state list, and concurrent list. TheParliament has powers to make laws in respect of matters mentioned in the union list and state legislatures have powers to make laws in respect of matters mentioned in the state list and both have powers to make laws in respects of matters mentioned in the concurrent list.
For day-to-day functioning and to meet administrative expenses and also for undertaking developmental works, every Government whether in the Central or States requires revenue which are earned from different sources. Levy of tax is one such source of income to the Government. Article 265 makes it very clear that no tax shall be levied
or collected except under an authority of law. Stamp duty registration charges are the major sources of revenue to the State Governments. In Karnataka, the department of registration and stamp duty is ranked among the top five revenue earning departments of the State.
The stamp duty and registration charges are payable on ad-volerem basis, that is based on the value of property. No maximum limit is prescribed in respect of stamp duty and registration charges payable on transfer of property. The stamp duty and registration charges go up with the increase in the value of sale consideration paid for the property i.e. higher the sale consideration, the greater the stamp duty and registration charges.These charges are normally borne by the purchaser of the property unless there is a contract between the parties to the contrary effect. Apart from payment of sale consideration, stamp duty and registration charges, the purchaser has to incur expenditure to get revenue records mutated in his/her name and for transfer of power and water connections to his/her name. All these expenses put together would be around 12% of sale consideration.
To save some money from out of this expenditure, parties to a sale transaction by mutual consentmention the value of the property in the conveyance deed at a much lower figure than its actual market value and thereby pay less stamp duty and registration charges while at the same time, thepurchaser makes payment of sale consideration as agreed upon to the vendor. This process of declaring the value of a property in the conveyance deed at a figure lesser than the actual sale consideration agreed upon for purposes of registration is generally known as undervaluation of theproperty. This modus operandi has two adverse effect on the society. Firstly, there is loss of revenue to the Government and secondly, circulation of unaccounted money III the market goesup. The Karnataka Stamp Act 1957 has certain sections dealing with undervaluation of property.Section 45-A
Inserted the Karnataka Stamp Act 1957, during 1975 and 45-B inserted during 1991 deal with the subject. Section 45-A deals with the procedure to be adopted where the properties are undervalued in a sale transaction.
The parties producing documents for registration have to file the market value of propertycalculated in the prescribed form No.1. If registering officer has reasons to believe that the market value of the property shown in the document produced for registration is not the actual value of theproperty in the locality, he may arrive at the market value of such property and inform the partiesto pay the stamp duty and registration charges according to the market value arrived by him. For arriving at the marketvalue, the registering officer will use the guidelines value published by thecommittee constituted for estimation of market value under Sec.45-B. The values published by thecommittee are the guidelines value for registering offices to determine the market value. They are the average value of the property in a particular locality. If the sale consideration of a property shown in the sale deed is lower than the guidelines value prescribed for that area, then the stamp duty & registration charges are payable on the basis of the guidelines value. If the market value of this property is more than the guidelines value, the stamp duty payable is as per the market value. The registering authority informs the market value as arrived by him in form I-A to the parties. This gives options to the parties to contest the valuation done by the registering authority, or to agree or to withdraw the document from registration.
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