Buyers and sellers of real estate, particularly in premium locations, will not have to fork out any additional taxes in case the difference between the stamp duty value and agreement value of the property is lower than 5%. The Union Finance Minister has proposed this move as part of the Union Budget for 2018. Currently, in case the selling price of any property is lesser than the circle rate, the difference will be added to the income of the buyer and this will be taxed under the income from other source head.
The seller has to calculate the capital gains based on the circle rate which indicates higher tax payments. Circle rates are the reference prices of property or benchmark rates from State Governments which indicates higher tax payments. The payable stamp duty is worked out on the basis of circle rates which are also called collector or ready reckoner rates.
As per the proposal of the Union Budget 2018, sellers will have to work out capital gains based on the considered stamp duty pricing as per Section 50C. The tax liability will be lower for both buyers and sellers due to the provisions of the 2018 Union Budget. However, the tax benefit that has been proposed will not be available in case the difference between the circle rate and property value exceeds 5%. A difference is usually observed in case of premium locations in metro cities. In the suburbs, circle rates are quite nearer actual prices of property. They are in fact lower in case of Tier-II cities.
This proposal from the Union Finance Ministry will be a boon for sellers and buyers in locations where the prices of property have witnessed a higher correction over the last 2-3 years. There are areas in cities like Gurgaon where prices are lower than the benchmark rates of the Government in a few locations. This takes place in spite of the circle rates being reduced over the last two years. However, the regulations mandate that buyers and sellers have to pay taxes themselves on the difference.
Two real estate properties located adjacent to each other may be selling at price points which may be different in spite of circle rates being the same for both these properties.
