Budget 2020: Tax liability on properties sold below circle rate eased

No additional tax liability arising out of a transaction where the difference in the actual transaction value of the property and the circle rate is lower than 10%; earlier this was up to 5%

Kumar Shankar Roy Feb 2, 2020

Real estate circle valueThere is a relief for homebuyers and sellers as Budget 2020 proposed no additional tax liability arising out of a transaction where the difference in the actual transaction value of the property and the circle rate is lower than 10%. The new provision will come into effect from April 1, 2021.

So far, this benefit was available only in case of the properties where the difference between the actual transaction value and the circle rate was up to 5%. These transactions resulted in additional tax liability for both the buyer as well as the seller.

The circle rate (or ready reckoner rate) is the minimum rate of property that the authorities set for a particular region. A property can be registered at this rate in case of a sale or transfer. Due to price correction in some areas, the market prices of properties have gone below the circle rates.

“Currently, while taxing income from capital gains, business profits and other sources in respect of transactions in real estate, if the consideration value is less than the circle rate by more than 5%, the difference is counted as income, both in the hands of the purchaser and seller. In order to minimise hardship in real estate transaction and provide relief to the sector, I propose to increase the limit of 5% to 10%,” Union Finance Minister Nirmala Sitharaman said in her Budget speech.

This means that any purchaser acquiring any real estate at a price which is 90% or higher of its stamp duty value would not be subject to additional tax.

As per relevant norms, if the market value of a property is lower than the circle rate, then the difference is taxed as ‘other income’ for the buyer. On the other hand, the seller of the property will have to pay capital gains tax on the circle rate of the property. Thus, the Budget 2020 proposal will help the secondary market.

The Union Budget 2018 had proposed 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%.

Do note that the stamp duty, registration value, and the capital gain are calculated on the circle rate, and not the actual sale price, if the value of the transaction is below the circle rate. If the transaction value is above the circle rate, then the transaction value is the basis for capital gains calculation.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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