Know your costs
Let us identify fees, levies, duties and taxes which are to be incurred by the land owner or the developer as the case may be in the construction of a typical residential apartment complex.
These are in addition to the cost of land and cost of construction which are extremely important since they have a substantial bearing on the total cost of the project. This in turn plays a vital role in determining the sale price offered by the owner/developer to the final purchaser. These costs could be broadly divided into two categories i.e., pre-launch and post-launch.
The pre-launch costs include conversion fine, change of land use fee (wherever applicable) and the betterment charges payable on the land in question apart from the costs involved in obtaining building plan sanction and other statutory clearances and permissions from the Pollution Control Board, Airport Authority, Fire Force department, etc.
The post-launch costs include Value Added Tax (VAT), service tax, stamp duty, registration fee, power deposits, water deposits, maintenance deposits, Khatha transfer fees, etc.
To illustrate all these, let us take an example of land “A” which is agricultural in nature falling within the Bangalore Development Authority jurisdiction and earmarked as industrial zone in the Comprehensive Development Plan (CDP) 2015 by the Bangalore Development Authority.
In case the land owner wants to construct a residential apartment complex and sell the apartments, he will have to take the following steps:
Change of land use: He will first have to apply to the Bangalore Development Authority for change of land use from industrial zone to residential zone under the provisions of the Karnataka Town and Country Planning Act, 1961. Section 14-A(3) of the Act provides that if the change of land use is sought from industrial to residential, the stipulated fee is paid and the local planning authority is informed prior to effecting the change, the permission for such change of land use or development shall be deemed to have been given.
The fee payable for the change from industrial to residential uses and purposes is Rs. 20 per sq.m. On the stipulated fee being paid, the Bangalore Development Authority will issue a formal document titled “Commencement Certificate” confirming the change of land use.
Conversion: Once the change of land use is approved, an application for conversion from agricultural to non-agricultural residential uses and purposes will have to be filed by the owner/ developer with the Special Deputy Commissioner, Bangalore District, under Section 95 of the Karnataka Land Revenue Act, 1964.
If the documents are found to be in order, the Special Deputy Commissioner will ask the applicant to pay the conversion fine of Rs.54,450 per acre (Rs.1.25 per sq.ft.) by a challan to the State Treasury. On the conversion fine being paid by the applicant, the Special Deputy Commissioner will issue what is called an “Official Memorandum” i.e., the order of conversion.
Once this order is issued, the land can be said to have lost its agricultural status and becomes capable of being put to residential use.
The other pre-launch costs will be discussed in the next issue.
(N.C.S. Raghavan is a chartered accountant and Arvind Raghavan, an advocate)
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