Tax im­pli­ca­tions of cir­cle rate re­lax­ation

HT Estates - - FRONT PAGE - Ash­wini Ku­mar Sharma ash­

Union Bud­get 2018 has pro­posed some re­lief for those home­buy­ers and sell­ers, who are look­ing for­ward to buy or sell prop­er­ties in lo­cal­i­ties where the cir­cle rate is higher than the mar­ket value. The fi­nance min­ster has pro­posed that no ad­di­tional tax will be payable by the sell­ers and buy­ers if the dif­fer­ence between the ‘ac­tual sale price of a prop­erty’ and its cir­cle rate is not more than 5%. Let’s read how this pro­posal can help you.


last cou­ple of years in many parts of Gu­ru­gram by the Haryana gov­ern­ment, the cir­cle rates are still higher than the mar­ket value in a few lo­cal­i­ties.

In many cases, un­favourable ori­en­ta­tion or lo­ca­tion of a plot can bring down its price. Such fac­tors do not re­flect in the cir­cle rate.

Higher cir­cle rates are a prob­lem for both buy­ers and sell­ers. The buyer has to pay stamp duty on reg­is­tra­tion value, which can’t be lower than the cir­cle rate.

Be­sides that, buyer also has to pay tax on the dif­fer­ence of amount—cir­cle rate less mar­ket rate—un­der sec­tion 56(2) of the In­come-tax Act, 1961, where cir­cle rate is higher, as it is con­sid­ered to be a profit for the buyer.

On the other hand, the seller has to cal­cu­late cap­i­tal gain based on the stamp value of the prop­erty un­der sec­tion 50C of the Act, ir­re­spec­tive of the fact that he may have sold the prop­erty at a price lower than the cir­cle rate. The stamp duty value is taken as the deemed selling price and cap­i­tal gain will be com­puted ac­cord­ingly.

Say, a per­son sells her prop­erty for Rs1 crore and the in­dexed cost of ac­qui­si­tion is Rs75 lakh.

Her cap­i­tal gain would be Rs25 lakh (Rs1 crore mi­nus Rs75 lakh). But if ac­cord­ing to the cir­cle rate the prop­erty rate is de­ter­mined to be Rs1.1 crore, the cap­i­tal gain would be Rs35 lakh (Rs1.1 crore mi­nus Rs75 lakh). The higher cap­i­tal gain will mean more cap­i­tal gains tax for seller.

Go­ing ahead with the same ex­am­ple, even if the buyer in the above case is buy­ing the prop­erty at Rs1 crore, he has to reg­is­ter the prop­erty at Rs1.1 crore and pay the stamp duty ac­cord­ingly. At the same time, Rs10 lakh ( Rs1.1 crore mi­nus Rs1 crore—the dif­fer­ence between the cir­cle rate and buy­ing price), will be con­sid­ered as ‘in­come from other source’, and taxed as per the nor­mal slab rate ap­pli­ca­ble to the per­son.

So, ac­cord­ing to the above ex­am­ple, both seller and the buyer are at loss.

To min­imise this hard­ship in the real es­tate trans­ac­tions for both buy­ers and sell­ers, the fi­nance min­is­ter has pro­posed to amend the sec­tion 50C and sec­tion 56(2) of the Act.

Ac­cord­ing to the pro­posed amend­ments, no ad­just­ment shall be made in a case where the cir­cle rate value does not ex­ceed by 5% of ac­tual trans­ac­tion value or mar­ket value.

“Mi­nor respite is pro­vided to real es­tate trans­ac­tions in cities like Delhi-NCR and Mum­baiCBD, where the cir­cle rates are some­times higher than the ac­tual trans­ac­tion value, which re­sults in ad­di­tional tax for both buy­ers and sell­ers,” said Ankur Dhawan, chief in­vest­ment of­fi­cer,

Once the bud­get pro­pos­als are ap­proved and come into ef­fect, if a seller sells a prop­erty for Rs1 crore, while ac­cord­ing to the cir­cle rate the prop­erty’s value is Rs 1.05 crore, she need not cal­cu­late cap­i­tal gains based on the cir­cle rate value of Rs1.05 crore.

At the same time, buy­ers can avoid pay­ing tax on the no­tional gains of Rs5 lakh.

How­ever, as no amend­ment has been pro­posed in the Stamp Duty Act, the buy­ers are still re­quired to reg­is­ter the prop­erty at the cir­cle rate at least and pay the stamp duty ac­cord­ingly.

Most of the stake­hold­ers in the real es­tate sec­tor have wel­comed the pro­pos­als made by the fi­nance mis­ter, but there are many who say that re­lax­ation of 5% is too less.

“The f i nance min­is­ter an­nounced a 5% de­vi­a­tion from cir­cle rates to re­move hard­ships faced by the real es­tate in­dus­try. How­ever, this may not be enough as the ac­tual de­vi­a­tion of cir­cle rates to pre­vail­ing mar­ket is in many cases as high as 30%, crip­pling trans­ac­tions,” said, Nidhi Sek­saria, part­ner, real es­tate, BDO In­dia, an ac­count­ing, tax, and ad­vi­sory firm.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.