Everything you need to Know about Circle Rates in Real Estate
Apr 10, 2017 Home Trading Steps
Property sellers need to be well aware of a host of income tax provisions while selling their property. Incomplete or partial knowledge about various benefits related to capital gains in Income Tax Act may actually invite losses to the sellers. In order to get tax benefits on capital gained by the subsequent selling of the property, one should understand the concept of circle rates and its provisions in the Section 50C of the Income Tax Act.
Let us discuss Circle rates in detail:
What is Circle rate?
Every state government or the concerned local authority decides on a minimum valuation of the property. The stamp duty is computed based on the aforementioned evaluation. This minimum decided the value of a property is termed as the circle rate of that property. The computation of circle rate differs from locality to locality depending on the state of physical infrastructure in the region.
Significance of circle rates while selling a property:
Although in most of the deals property is sold well above the circle rate, it may be sold well below the circle rate as well in some cases. Let us discuss the tax implications on the seller in such cases. Under the Section 50C of the Income Tax Act, while calculating the capital gains of the seller after selling a property, the sale consideration as declared by the seller will be replaced by the circle rate of the property and accordingly, the capital gains would be computed.
Let us understand the above clause with an example: Suppose Mr. A closes a deal to sell his flat for Rs 50 lakh. At the time of registry of Sale document at the office of the concerned local authority, Mr. A finds out that the circle rate decided on his property is 60 lakh INR and that the stamp duty would now be computed on the basis of circle rate. Since the stamp duty is borne by the buyer, Mr. A won’t be too concerned about the increase in an amount of stamp duty. However, here comes the catch. As per the rules mentioned in the Section 50C of the Income tax Act, the capital gained by Mr. A shall be computed on the basis of Rs 60 lakh i.e. the said property’s circle rate which was adopted by the stamp duty authority at the time of charging stamp duty on the sale transaction of the property. Hence, while computing capital gains on selling immovable properties, the sellers/taxpayers will have to consider the stamp duty value of the transaction.
Tax consultants hence suggest all those taxpayers who fall under the ambit of Section 50C to carefully plan their advance tax payments. It is important to remember that in situations where you might not have received actual payments and that the stamp duty valuation is adopted for sale consideration for the property you have sold, then, you must consider the stamp duty valuation against sale consideration while computing your capital gains and respective capital gain tax.
Let us discuss Circle rates in detail:
What is Circle rate?
Every state government or the concerned local authority decides on a minimum valuation of the property. The stamp duty is computed based on the aforementioned evaluation. This minimum decided the value of a property is termed as the circle rate of that property. The computation of circle rate differs from locality to locality depending on the state of physical infrastructure in the region.
Significance of circle rates while selling a property:
Although in most of the deals property is sold well above the circle rate, it may be sold well below the circle rate as well in some cases. Let us discuss the tax implications on the seller in such cases. Under the Section 50C of the Income Tax Act, while calculating the capital gains of the seller after selling a property, the sale consideration as declared by the seller will be replaced by the circle rate of the property and accordingly, the capital gains would be computed.
Let us understand the above clause with an example: Suppose Mr. A closes a deal to sell his flat for Rs 50 lakh. At the time of registry of Sale document at the office of the concerned local authority, Mr. A finds out that the circle rate decided on his property is 60 lakh INR and that the stamp duty would now be computed on the basis of circle rate. Since the stamp duty is borne by the buyer, Mr. A won’t be too concerned about the increase in an amount of stamp duty. However, here comes the catch. As per the rules mentioned in the Section 50C of the Income tax Act, the capital gained by Mr. A shall be computed on the basis of Rs 60 lakh i.e. the said property’s circle rate which was adopted by the stamp duty authority at the time of charging stamp duty on the sale transaction of the property. Hence, while computing capital gains on selling immovable properties, the sellers/taxpayers will have to consider the stamp duty value of the transaction.
Tax consultants hence suggest all those taxpayers who fall under the ambit of Section 50C to carefully plan their advance tax payments. It is important to remember that in situations where you might not have received actual payments and that the stamp duty valuation is adopted for sale consideration for the property you have sold, then, you must consider the stamp duty valuation against sale consideration while computing your capital gains and respective capital gain tax.
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