stamp duty

How will the Homebuyers Benefit after Lower Stamp Duty in West Bengal

In a pleasantly surprising move, the West Bengal government, in the state budget proposal, announced major incentives to the homebuyers. It announced the reduction of circle rates by 10% and reduction of stamp duty by 2%. The scheme will be valid till September 30, 2022.

Because of Covid 2nd wave, the economic activity took some hits and homebuyers welcomed this announcement with open arms. It is also hoped that these measures will boost the real estate industry as well as the associated industry. Similar measures have elicited extremely positive responses elsewhere in the country.

The real estate industry is one of the major job creators and if this industry does well, it can contribute hugely towards job creation and economic demand generation. At this time, these are extremely important functions to support the economy. It is hoped that such incentives will help the real estate and associated industries such as steel, cement, paint, consumer durables in a big way.

How will the Homebuyers Benefit?

Primary beneficiaries of these policy measures are surely homebuyers who will benefit in multiple ways.

Reduction of circle rates and the stamp duty will have a multiplier effect and the benefit to homebuyers is substantial. Let’s do some number crunching to see how much homebuyers will gain.

Let us assume the current price of a property is Rs 50 lakh. Let us see how the wB budget proposals will affect the registration cost and Income Tax liability to the buyer and the seller.

Currently, stamp duty @6%  = Rs 3,00,000/-

Registration charges @ 1% = Rs 50,000/-

Total expenditure on registration = Rs 3,50,000/-

As per the budget proposal, the circle rate is reduced by 10%, and stamp duty is reduced by 2%. So the 50 lakh property will be valued at Rs 45 lakh.

Therefore, stamp duty @4% = Rs 1,80,000/-

Registration charges @1% = Rs 45,000/-

Total expenditure on registration = Rs 2,25,000/-

A homebuyer will save Rs 1,25,000/- (35.71%)

Let us note that all of the above calculation is based on market value.

Now let us understand the effect of Income Tax on the new policy.

Currently, if a property has a market value of 50 lakh, then the agreement value cannot be below 40 lakh to avoid Income Tax, as per sec 43A, payable by both seller and buyer.

Under the budget proposals, the market value is reduced to 45 lakh. So, the agreement value can be 36 lakh to avoid Income Tax.

There is a benefit of Income Tax liability of Rs 4 lakh.

For the homebuyer, it can amount to Rs 1,20,000/- assuming his Income Tax slab is 30%.

Let’s look at it from another point of view. Suppose the agreement value is currently Rs 36 lakh while the market value is Rs 50 lakh. The buyer and the seller are liable to pay Income Tax on 4 lakh in this case. But under the proposed system when the market value is reduced by 10%, there will be no Income Tax liability on either of them.

How will the Homebuyers Respond?

It is now on the homebuyers to respond positively to these incentives as the scheme is for a short period only, i. e. till March 31, 2022. The scheme is primarily to offer some financial relief in these difficult times.

Homebuyers should aggressively take advantage of this lucrative scheme. On top of the low-interest regime, PMAY CLSS scheme, this is an additional benefit homebuyers should enjoy.

There is very little benefit in delaying home purchase right now as such benefits will surely end one day. The economy is cyclical, and a higher interest rate regime will follow a low-interest rate regime for sure.

A favourable response by homebuyers will not only benefit them but in its turn will benefit the real estate industry and the state’s economy as a whole.

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