The dummy’s guide to evading stamp duty

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As many as 32 cases were detected in Mathura district alone where the land use was changed to residential and then back to agricultural use. Photo: AP
Milking the system As many as 32 cases were detected in Mathura district alone where the land use was changed to residential and then back to agricultural use. Photo: AP

In Uttar Pradesh, a nexus of real estate developers, district authorities and revenue department officials is running an organised racket to evade stamp duty and income tax on capital gains as well as land revenue.

The racketeers buy agricultural land and under the provisions of the Uttar Pradesh Zamindari Abolition and Land Reforms (UPZALR) Act, 1950, get the land use changed from agricultural to residential. The land is developed for residential purpose and again its use is changed to agricultural and sold. The sale of agricultural land attracts only 4 percent stamp duty while the land registered as aabadi (residential) in revenue records attracts a minimum 7 percent stamp duty.

The developers are evading the payment of land revenue as well. Once the land use is changed from agricultural to residential, it is free from the purview of land revenue. In Uttar Pradesh, the sale/purchase of agricultural land valued up to Rs 5 lakh is exempted from stamp duty.

A Mathura-based real estate developer blew the lid off the scam when he filed a complaint against the sub-divisional magistrate to the Lokayukta Justice (retd) NK Mehrotra. Soon, the Lokayukta brought to the notice of the state government the massive evasion of stamp duty by real estate developers in the sale and purchase of agricultural land. The racket is thriving in connivance with the staff of the revenue department as well as officials such as district and sub-divisional magistrates.

Acting on an application filed in his court by a real estate developer, the sub-divisional magistrate of Sadar tehsil in Mathura district allowed the change in use of a 4-hectare plot in Tehra village from agricultural to residential in December 2008. The order was passed under Section 143 of the UPZALR Act. In 2013, the Mathura Development Authority approved the building plan for the construction of apartments on the land.

However, nearly half the plot was left vacant. Later, the real estate developer applied in the same court for the change in the use of the vacant 2.3 hectares from residential to agricultural under Section 144 of the UPZALR Act.

After obtaining a report from the Lekhpal (revenue record keeper) and Kanungo (revenue inspector), the sub-divisional magistrate passed the order for the change in land use. Last December, the developer sold this ‘agricultural land’ to a Delhi-based firm for Rs 4 crore.

In this transaction, both the state government and the income tax department lost on the account of evasion of stamp duty and 30 percent income tax on capital gains. The land use change was illegal and was obtained only to evade stamp duty as agricultural land attracts a low rate while residential land attracts much more.

The cost of the plot was more than Rs 26.5 crore and the stamp duty payable was Rs 1.85 crore. The actual stamp duty paid in this transaction was only Rs 28 lakh. The loss to the state government on account of the stamp duty was Rs 1.58 crore and 30 percent income tax on capital gains of Rs 26.5 crore was Rs 6.75 crore. Both the Centre and the state lost close to Rs 9 crore in just one land deal.

Following an investigation by the Lokayukta, the then Mathura district magistrate, Vishal Chauhan, confirmed the evasion of stamp duty. After spot verification, the additional inspector general, stamps, confirmed that the land was used for residential purpose and a multi-storey apartment had been constructed and the land use change from residential to agricultural was only done with the purpose of evading the stamp duty. Following the complaint, the Lokayukta registered a case in April and sent the investigation report to the government in September.

In 2013-14, the state government earned a little more than Rs 10,000 crore from the stamps and registration department, which saw more than 3 crore transactions of sale and purchase of land and other properties. In 2014-15, the government has fixed a target of Rs 12,722 crore from the stamps and registration department. The total revenue target for the current fiscal is Rs 81,000 crore.

“What has been detected during my investigation in Mathura is merely the tip of the iceberg; the racket is huge and spread all over the state,” says Lokayukta Mehrotra. “I have confirmed reports that evasion of stamp duty is taking place in five other big districts but I can do nothing to stop it because I have no complaints from these districts. Even if I issue any directive to the officials of the five districts or the state government, they will challenge it in the high court and it will be stayed.”

On the receipt of the complaint from Mathura, the Lokayukta asked for reports from the district magistrates of several other districts whether such irregularities were happening there as well. All the district magistrates confirmed the rampant evasion of stamp duty in connivance with officials and staff of the revenue department.

“There is nothing new in the evasion of stamp duty by changing the land use from residential to agriculture and vice versa,” says a former official in the stamps and registration department on the condition of anonymity. “It has been happening for more than a decade, but so far the state government has not found it prudent to stem this menace. I don’t deny the involvement of the staff of the stamps and registration department but they alone cannot do it until the revenue officials tamper with land records.

“The inspection of the land is done by the revenue record keeper and the revenue inspector and they certify that the category of the land as agricultural or residential and the registration of the land is done on the basis of this report. What has been detected in Mathura district is not even the tip of the iceberg. It is a huge racket that runs into several hundred crores of rupees in just one year alone.”

Since 2007-08, as many as 32 cases were detected in Mathura district alone where the land use was first changed to residential and then back to agricultural. Had the district authorities not allowed such changes under Section 144 of the UPZALR Act, it would have fetched more than Rs 4 crore as stamp duty. So far, the state government has not initiated any action in the 32 cases. The Lokayukta is unable to proceed because neither has his office received any complaint nor has the state government referred the matter to him for an investigation.

As a sample study, the Lokayukta sought the information about land use change done in the past two years from the district magistrates of Gautam Buddh Nagar, Lucknow, Agra, Kanpur, Barabanki and Ghaziabad.

• The district magistrate of Ghaziabad revealed that the land use was changed, resulting in the evasion of stamp duty to the tune of Rs 7.15 crore
• In Kanpur district, 32 such cases were detected where land use was changed back and forth, resulting in a loss of 3 crore to the exchequer
• The district magistrate of Agra said that six such cases were detected in the district in the past two years, causing a revenue loss of more than 4 lakh
• In Barabanki district, 17 such cases were detected from the past two years, causing a revenue loss of more than 75 lakh to the government

In his report to the state government, the Lokayukta has recommended a thorough investigation into such transactions done in the past five years. The Lokayukta says that the chairman or a member of the revenue board should head the probe. The officials who aided and abetted the tax evasion by allowing the change in land use should be punished, he adds.

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